Author Topic: Is it Worth it to Buy Points to lower a mortgage rate?  (Read 1312 times)

dcozad999

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Is it Worth it to Buy Points to lower a mortgage rate?
« on: May 03, 2017, 09:02:01 AM »
Mortgage will be $232,000 with a 3.95% fixed 30 year rate.

For $605.62 I can buy half a point to get to 3.875%. Mortgage officer said the break even point will be in the 5th year.

What say you?

Bicycle_B

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Re: Is it Worth it to Buy Points to lower a mortgage rate?
« Reply #1 on: May 03, 2017, 09:23:07 AM »
How long do you think you will actually keep the house?  If it's less than 5 years, of course not worth it.

There is also the possibility of refinancing in future.  A long shot if rates go up as the Fed intends, but conceivable.

Remember if you don't buy points, you could get stock market returns on the money instead.  6% on average, maybe?  In any case, you don't win at breakeven, you have to have the interest savings compensate for the lost investment opportunity.

None of these things are fully predictable but the biggest variable is yourself.  What's your intention of holding the house, and how confident are you in that predicting that you will fulfill your intention?

I don't pay points, but to me they look like a judgment call.

RWD

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Re: Is it Worth it to Buy Points to lower a mortgage rate?
« Reply #2 on: May 03, 2017, 09:24:49 AM »
Are you planning on staying in the house for five years? If so it would make sense to me. I decided to spreadsheet the calculations myself and came up with 58 months as your break even point, assuming you invest the $605.62 at 10%.

Break even point for other investment returns assumptions:
7% - 54 months
5% - 51 months
3% - 46 months
1% - 44 months

dcozad999

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Re: Is it Worth it to Buy Points to lower a mortgage rate?
« Reply #3 on: May 03, 2017, 10:12:51 AM »
I'm "planning" on staying in the house for at least 20 years. But as we know anything can happen.

Interest rates will probably not go significantly lower.