The ABCs of NAVs

Q What are mortgage “points”? — J.M., Cadillac, Michigan A A point is 1 percent of a home loan. On a $200,000 mortgage, one point would be $2,000.

There are “origination” and “discount” points. Your lender may charge origination points for originating, or launching, your mortgage. Discount points, which lower your interest rate (and thus your payments), are optional. With them, you pay extra money at the beginning of your loan so that you can pay less over time. The more points you pay, the lower interest rate you get.

Should you opt to pay points when taking out a mortgage? It depends on how long you expect to stay in the home. If you pay a few points and then sell your home after two years, you’ll have enjoyed lower monthly payments due to the lower interest rate, but you probably will have paid more than you saved. For example, if you pay $3,000 in points to save $50 per month, it will take you 60 months, or five years, to break even.

Explore various home-buying (and tax, retirement, saving, debt, insurance, etc.) scenarios with online calculators at fool.com/calculators/ and bankrate.com/calculators.aspx.

*** Q I’m investing for the long term. Should I be paying any attention to strategies such as selling in May and reinvesting in October? — R.T., Charleston, South Carolina A That’s a market-timing strategy, many of which can be risky. There’s no way to know, after all, exactly when the market will surge or plunge and when you should get in or get out. Guessing wrong can have you missing a big run-up or selling prematurely. Your long-term focus will serve you best. Invest in healthy, growing companies, and aim to hang on for many years. Want more information about stocks? Send us an email to foolnews@fool.com.