1. Should you pay points when getting a mortgage?
A Twitter White-Paper.
First off, when you get a mortgage, you will have costs with it, including, sometimes, origination points, where you pay just to get the mortgage.
But, you can also pay points to lower your interest rate.
A Twitter White-Paper.
First off, when you get a mortgage, you will have costs with it, including, sometimes, origination points, where you pay just to get the mortgage.
But, you can also pay points to lower your interest rate.
2. Is it worth it?
Let's take a look:
First, let's say you're getting a standard 30 years mortgage of $300,000, and your interest rate is 4%
Your principal and interest payment would be $1,432.
So, over 30 years, you would pay $515,520 total.
Let's take a look:
First, let's say you're getting a standard 30 years mortgage of $300,000, and your interest rate is 4%
Your principal and interest payment would be $1,432.
So, over 30 years, you would pay $515,520 total.
3. By the way, if you think you need a 15 year to save money, or you're concerned because @daveramsey says 'you bought the house twice, you dummy!
You need to read this NOW:
Come back when you're done.
You need to read this NOW:
Come back when you're done.
4. Now, let's say you're planning on staying in your house awhile.
It might sound good to 'buy down' the interest rate so you have a lower payment.
Roughly, for every 1% of the mortgage you give them, your interest rate will drop by .25%
I say roughly because lenders vary.
It might sound good to 'buy down' the interest rate so you have a lower payment.
Roughly, for every 1% of the mortgage you give them, your interest rate will drop by .25%
I say roughly because lenders vary.
5. So, in this example, if you give the mortgage company $3,000 (on top of your other closing costs),
Your new rate would be 3.75%.
And your payment would drop from $1,432 a month to $1,389 a month, saving you $43 a month.
On the surface, that might sound good.
Your new rate would be 3.75%.
And your payment would drop from $1,432 a month to $1,389 a month, saving you $43 a month.
On the surface, that might sound good.
6. If you keep the loan for all 30 years, you would save $15,480, and you only 'gave up' $3,000 today.
It would take you 70 months to 'break even' according to traditional math.
Or just under 6 years for you to 'make back' the $3,000 that you gave them.
It would take you 70 months to 'break even' according to traditional math.
Or just under 6 years for you to 'make back' the $3,000 that you gave them.
7. So, what's the problem if you plan on staying?
In fact, according to the National Association of Realtors, the average American stays in their home 13 years.
Wouldn't it make sense to save that money and have the lower payment?
In fact, according to the National Association of Realtors, the average American stays in their home 13 years.
Wouldn't it make sense to save that money and have the lower payment?
8. There are a couple of problems with that.
First, though I couldn't find any recent statistics, from what I see, the average middle aged American refinances their home every 4 to 5 years.
So they're not holding the mortgage long enough, usually, for it to hit breakeven.
First, though I couldn't find any recent statistics, from what I see, the average middle aged American refinances their home every 4 to 5 years.
So they're not holding the mortgage long enough, usually, for it to hit breakeven.
9. Next, don't forget opportunity cost.
If you truly want to be as efficient as possbile with your money, you have to look at ALL aspects of what's happening, including what would happen to the $3,000 if you invested it, instead of giving it to the mortgage company.
If you truly want to be as efficient as possbile with your money, you have to look at ALL aspects of what's happening, including what would happen to the $3,000 if you invested it, instead of giving it to the mortgage company.
10. If you invested that $3,000 at 7% (reasonable for a long period of time),
at the end of 30 years, it would have grown to $22,837, or MORE than the $15,480 that you 'saved' in payments.
Heck, after even 6 years (the break-even point), your $3,000 would be worth $4,502.
at the end of 30 years, it would have grown to $22,837, or MORE than the $15,480 that you 'saved' in payments.
Heck, after even 6 years (the break-even point), your $3,000 would be worth $4,502.
11. So, because you may want to refinance in the future (for whatever reason, including rates dropping),
or you may move sooner than the 6 years;
OR, simply to retain more control of your money,
I would NOT recommend paying discount points on a mortgage.
Ever.
or you may move sooner than the 6 years;
OR, simply to retain more control of your money,
I would NOT recommend paying discount points on a mortgage.
Ever.
12. And that is especially true if you have an Adjustible Rate Mortgage (ARM), because you're only lowering the interest rate on the early portion of the loan,
not the entire life of the loan.
not the entire life of the loan.
13. So, when it comes to discount points on a mortgage,
do what you were supposed to do when it came to drugs:
Just say no.
Wait, you DID say no to drugs, right?....You did NOT?!?
I'm SHOCKED.
Well, I hope you enjoyed (and can remember) the information.....druggie.
/end
do what you were supposed to do when it came to drugs:
Just say no.
Wait, you DID say no to drugs, right?....You did NOT?!?
I'm SHOCKED.
Well, I hope you enjoyed (and can remember) the information.....druggie.
/end
