Question Details

Penny, Home Buyer in 10704

What is better to have a good rate, or less points. Also can anybody tell me if wells fargo is good for

Asked by Penny, 10704 Wed Aug 13, 2008

mortgage loans. thanks

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Lending answer:

First, your question regarding rates versus discount points really boils down to a math question and how long you plan to keep the mortgage.

Let's look at an example:

Loan amount: $100,000
Option 1 - Rate with No Discount: 6.50%
Principal & Interest Payment for 30 years: $632.07

Option 2 - rate with 1 discount point: 6.25%
Principal & Interest Payment for 30 years: $615.27

Savings: $632.07-$615.27=$16.35

1 point on $100,000 = $1,000

Months to recover cost of discount point: $1,000 / $16.35 = 61.16

So on the example above, if you pay one discount point to reduce your rate, it will take 61 payments (5 years plus 1 month) for the payment savings to exceed the cost of the discount. If you sold your home or refinanced in less than 61 months, the fees for the lower rate will cost you more than the higher payment from the higher rate.

Second, Wells-Fargo is well respected. It's one of the largest lenders in the US. It has its detractors, and doesn't necessarily offer lower rates than any other lender. Rates depending on borrower qualification PLUS the profit margin the lender places on rates.
0 votes Thank Flag Link Wed Aug 13, 2008
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