Posted on: 25th Jun, 2009 08:07 am
Please explain how buying points can save me money on the interest of our loan. Also, how many points can I buy. How low of an interest payment can I go? Can I buy 3 points and only pay 3% interest on my new loan???
Yes you can save on your interest rate by buying points. The problem is that 1 point is not always equivalent to 1% on the interest rate.
Example 6% is the rate and you buy down 3 points you may only be at 4.875% (3 points on a 100K loan is $3000)
How long would it take to make back the savings?
Often it is not worth buying down points. If this is your first home, you typically wont be there long enough to take full advantage of the benefit. Many factors play into that choice.
Example 6% is the rate and you buy down 3 points you may only be at 4.875% (3 points on a 100K loan is $3000)
How long would it take to make back the savings?
Often it is not worth buying down points. If this is your first home, you typically wont be there long enough to take full advantage of the benefit. Many factors play into that choice.
Assuming that you are looking at a conforming loan Vs. a sub-prime loan you will find that the impact from paying one point (i.e. 1% of the loan amount) generally equates to a .25% reduction in the interest rate. Thus paying 3 points will reduce the interest by .75% (.25% * 3).
The breakeven point for paying points Vs. not paying points is determined if you will hold onto the loan for 5 years. If you are planning on selling your home prior to 5 years it makes no sense to pay points. Also, keep in mind that statistics indicate that on average a homeowner will move every 6 years and change their mortgage program every 5 years. If you were looking to minimize your mortgage payment I would encourage you to look at an interest only loan as one of your options
The breakeven point for paying points Vs. not paying points is determined if you will hold onto the loan for 5 years. If you are planning on selling your home prior to 5 years it makes no sense to pay points. Also, keep in mind that statistics indicate that on average a homeowner will move every 6 years and change their mortgage program every 5 years. If you were looking to minimize your mortgage payment I would encourage you to look at an interest only loan as one of your options