# how to determine if to pay points or not on a mortage loan? we plan to stay 3-5 years but we wonder if we

Asked by Vimo.planner, 91362 Tue Aug 18, 2009

could use the money for something else ..we wouldnt want to let a good opportunity pass by either...

interests are good (5.5 or
so)...

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Hi Vimo.planner,

All other things being equal, meaning if we can assume we are only talking about a change in the points, follow these steps:

1) Calculate the monthly payment WITHOUT paying the points,
2) Calculate the monthly payment WITH paying the points,
3) Take result from #1 and minus result from #2 (this is your savings per month by paying the point).
4) Now, take the cost of paying the point and divide by the result from #3 (this is your breakeven point in months time).

Now you can consider the cost vs. benefit based on the number of months/years you intend to stay. For every month you stay past the breakeven point you are saving money. Leave before the breakeven point, and you have lost money by paying the point.

So, what is best for you will depend on the exact numbers you have to work with, and your timeline for occupation; however, this easy analysis should help you to â€œpencil-outâ€ what is your best move.

Best, Steve
The only thing I would add is that if you dont have your 3-6 month safety net savings, I would probably put the "ponts" into a savings for your safety net. I am often surprised how little people have saved for a rainy day. I'm a Realtor, not a financial planner, but I really think, especially in these times, that the safety net savings should not be neglected, especially by homeowners. Good luck!
Web Reference: http://www.ConejoLiving.com

One more thing there is a small side bonus in that if the points are deducablethen maybe a small saving on income tax.
Jacob,

Let's hope that vimo.planner lives longer than 3-5 years? ;)
Pretty easy, just calculate your break even point, if its greater that 3 years, dont bother. Save the cash.

In fact, I would look at 3 year FHA ARM rates if I were you, what is your mortgage scenario?