Posted on: 23rd May, 2010 03:45 am
I'm in the process of refinancing and that gets into comparing points. On whether to pay for points, the standard answer seems to be, figure out how much extra the points are costing you, over no points. Then how much the points are "saving" you per month. Then figure out how many months it will take to get back in savings, the cost of the points.
What if I have however much money the points will cost, just sitting around earning almost nothing in a savings account ( .10%) ? Meaning I'm not going to invest it somewhere better, and I don't need it for emergencies. Then wouldn't it make sense to put them towards a lower interest rate?
Thank you.
What if I have however much money the points will cost, just sitting around earning almost nothing in a savings account ( .10%) ? Meaning I'm not going to invest it somewhere better, and I don't need it for emergencies. Then wouldn't it make sense to put them towards a lower interest rate?
Thank you.
it's not too difficult to figure out. if you are planning on being in the home for many years, and will not refinance, paying points might make sense. but if you are not going to be in the home for a long time, points don;t make a lot of sense.
with rates as low as they are right now, paying points is really not necessary. i have not had borrowers pay discount points in more than a year, there is no great advantage to it right now.
might be over simplified, but your broker / lender can provide you with a payment schedule that will show your monthly payment at a rate without paying any points, and the rate with the points. take the difference in the payments, divide it by the cost of the points, and and see how long it takes to recover the extra cost.
with rates as low as they are right now, paying points is really not necessary. i have not had borrowers pay discount points in more than a year, there is no great advantage to it right now.
might be over simplified, but your broker / lender can provide you with a payment schedule that will show your monthly payment at a rate without paying any points, and the rate with the points. take the difference in the payments, divide it by the cost of the points, and and see how long it takes to recover the extra cost.
If the pay back period is longer than the time you plan to live in the property, do not pay the points.
If you plan to live there longer than the paytback period, maybe pay the points. Every month you stay in property past the break even point you are saving money.
On the other hand, when inflation kicks in, the savings rates will be higher. You may not pay the points and wait for that to occur and the invest at the higher savings rates.
Are you working? Open an IRA and put all your income in anIRA until you deposited all that extra money into the IRA.
Another way to look at points: If for every half a point (.500%) you pay the rate is lower by .125%, that is ok and normal. If you pay one point the rate should be .25% lower to be normal and a decent deal. These days, when you get down to the lower rates, since they are already so low. an eigthth (.125%) lower in rate often costs .75 points or 1.00 points. That is expensive. I would not do that.
If you plan to live there longer than the paytback period, maybe pay the points. Every month you stay in property past the break even point you are saving money.
On the other hand, when inflation kicks in, the savings rates will be higher. You may not pay the points and wait for that to occur and the invest at the higher savings rates.
Are you working? Open an IRA and put all your income in anIRA until you deposited all that extra money into the IRA.
Another way to look at points: If for every half a point (.500%) you pay the rate is lower by .125%, that is ok and normal. If you pay one point the rate should be .25% lower to be normal and a decent deal. These days, when you get down to the lower rates, since they are already so low. an eigthth (.125%) lower in rate often costs .75 points or 1.00 points. That is expensive. I would not do that.
