Author Topic: Buying points for a new mortgage  (Read 1494 times)

78bird

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Buying points for a new mortgage
« on: March 21, 2017, 06:53:47 PM »
We are building a new house and the loan amount will be around $400,000.  The current rate is 4.875 for a 30 year mortgage.  We have the option of buying points.  1.25 points for $5,000 gets us a rate of 4.625.  1.875 in points for $7,500 gets us a rate of 4.5.  Initially I was considering buying the points to pay less interest over the life of the loan and get a lower monthly payment.  We plan on staying in the house forever.  Maybe 40-50 years.  Now I'm thinking of the opportunity cost of $7,500 in 30 years and it may be better to invest that myself.  What would you do?

SnackDog

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Re: Buying points for a new mortgage
« Reply #1 on: March 22, 2017, 12:35:12 AM »
Plans change. Jobs change. People move, divorce, get bored, have children, win the lottery, die. Interest rates drop. Most people get about eight years out of a mortgage. Points are a ripoff if you don't keep the same mortgage the full term. I would not get them unless the mathematical breakeven were less than 10 years.

spooky105

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Re: Buying points for a new mortgage
« Reply #2 on: March 22, 2017, 07:52:16 AM »
Have you shopped around for rates from local mortgage originators (who will simply sell the mortgage on to Wells Fargo, etc. after 1-2 months)?

When I was mortgage shopping I saw points presented as an option from the large mortgage lenders (think folks that show up on Lending Tree) and my bank. It was a mess of options with all sorts of different fees. When I started getting quotes from a few originators that work with the local real estate agents I received quotes at the prime rate (currently 4%) with minimal fees (~$500 vs $thousands). Obviously, your options depend on credit history, income, and assets.


78bird

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Re: Buying points for a new mortgage
« Reply #3 on: March 22, 2017, 06:01:29 PM »
Point taken SnackDog.  A lot of things could change where I would have to sell and the bank already has your prepaid interest.  $7,500 would drop the monthly payment $90.  So i figure almost 7 years until I'm even.

spooky105-  I shopped around calling 10 local banks.  Most couldn't offer me anything when I told them that we rent about 20 acres out to a farmer who plants corn.  They say that makes it an unconventional loan and they wouldn't be able to sell the loan on the secondary market.  I only had 2 banks that were ok with it and they charged an extra .5% because it is unconventional. 

okobrien

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Re: Buying points for a new mortgage
« Reply #4 on: March 22, 2017, 08:25:55 PM »



spooky105-  I shopped around calling 10 local banks.  Most couldn't offer me anything when I told them that we rent about 20 acres out to a farmer who plants corn.  They say that makes it an unconventional loan and they wouldn't be able to sell the loan on the secondary market.  I only had 2 banks that were ok with it and they charged an extra .5% because it is unconventional.

Wait, do you mean the property that will be your primary residence also has acreage that you will be renting out? If so, is that income necessary to qualify for the loan?  I ask because otherwise I don't see why the bank needs to know about the land lease at all?  It seems to me that a traditional primary residence mortgage would suffice.

Hotstreak

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Re: Buying points for a new mortgage
« Reply #5 on: March 22, 2017, 09:08:34 PM »



spooky105-  I shopped around calling 10 local banks.  Most couldn't offer me anything when I told them that we rent about 20 acres out to a farmer who plants corn.  They say that makes it an unconventional loan and they wouldn't be able to sell the loan on the secondary market.  I only had 2 banks that were ok with it and they charged an extra .5% because it is unconventional.

Wait, do you mean the property that will be your primary residence also has acreage that you will be renting out? If so, is that income necessary to qualify for the loan?  I ask because otherwise I don't see why the bank needs to know about the land lease at all?  It seems to me that a traditional primary residence mortgage would suffice.


Unfortunately, it's infinitely more complicated than that (and not always intuitive).  Lots of it is laws and regulations, but some is each bank's internal rules, which is why you can usually get a loan if you call around enough.

SBuck

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Re: Buying points for a new mortgage
« Reply #6 on: March 23, 2017, 07:16:39 AM »
The bigger question that I would ask is what is your down payment going to be? If you're planning on purchasing a home with less than a 20% down payment, buying points to me doesn't make any sense. If you're looking to save money on interest why aren't you looking at 20 or 15 year mortgage?

78bird

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Re: Buying points for a new mortgage
« Reply #7 on: March 23, 2017, 12:21:31 PM »
okobrien - yes it is 25 acres total and about 20 of that is corn field.  The income isn't necessary for the loan.  Its only $1,000 a year but most banks didn't seem to like anything unusual.  They said if I rent out the land it makes the property like a business and I would have to get a commercial loan.

SBuck - No down payment.  We will be using our equity in the land.  I hate paying interest but a 15 year mortgage would increase our monthly payment by $1,000.  Not something I'm comfortable with right now. 

I'm leaning towards skipping the points and just make an extra payment every year.  It looks like that would shave 4 years 6 months off the loan and save $60,000 in interest.

okobrien

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Re: Buying points for a new mortgage
« Reply #8 on: March 23, 2017, 12:36:18 PM »
So, you will end up paying  $1100 more every year for $1000 in income.  I say just go with the conventional mortgage and let the farmer use the land for free.

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