what is good? to buy points on mortgage ? or to pay that money towards principal in the beginning?

Asked by Realsearch, San Jose, CA Fri Feb 19, 2010

what is good? to buy points on mortgage ? or to pay that money towards principal in the beginning?
is it really advantageous to get -ve point from the lender and lock in a little higher rate?

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Tean Wong, Agent, Boston, MA
Fri Feb 19, 2010
BEST ANSWER
Buying points is not always so bad if you can do some math calculation to see how long you are going to have this house for and when you will be able to break even on point payment. Please go see my post about the point.
0 votes
Rebekah Owen,…, Agent, San Jose, CA
Mon Mar 22, 2010
Realsearch,

Most folks don't stay in their home long enough to get the benefit of paying extra points.

PLUS, most folks don't remember to write down the points, on their taxes, over the life of the loan and then the balance when it's sold or refinanced.

it's just cleaner and easier to keep the money in your pocket from the beginning.

Just my opinion.

Rebekah
BenchmarkProperties.com
0 votes
Matthew Bart…, Agent, Glendora, CA
Fri Feb 19, 2010
Hi Realsearch,

Your monthly cash flow will play a big part in your decision. I agree with Rudy below that 3 years should be your break even with regards to buying points. I'm personally a strong advocate in putting any extra money you can towards your principle rather than points. Especially if you see yourself living in the home for 5 years or more. Bi-weekly programs are a great way to put extra money towards your principle and pay down the loan much faster. However, keep in mind that most banks do charge you a one time set-up fee for their bi-weekly programs. Typically $350 to $450. Another good rule of thumb is to never focus your attention only on interest rate. While this is an important factor it's more important to know First, what will this loan cost you and second, when will you pay the loan off? For any further questions I recommend that you speak with a Financial Professional or Advisor.

In the meantime, I can recommend a great book to pickup called It's Your Money! Tools, tips & tricks to borrow smarter and pay it off quicker. The Author is George J. Boelcke, F.C.I. and his website is http://www.yourmoneybook.com. Good luck!

Matt
0 votes
Rudy McDowell, Mortgage Broker Or Lender, Bloomfield Hills, MI
Fri Feb 19, 2010
Realsearch

If its going to take you 7 years to break-even, then paying points is not wise. The typical break-even point should be no more than 3 years. So, unless you absolutely have to pay pts as an adjustment for your credit score or loan size then don"t do it.

Now, if you're a first time homebuyer, it may make sense since you'll be able to get most if not of it back through the tax credit. But consult first with your/a tax preparer first.
0 votes
Realsearch, Home Buyer, San Jose, CA
Fri Feb 19, 2010
HI Bob McClure

But the big quesiton is - this is very unpredictbale to decide how long I am going to keep the house/
IF thats known its easy to decide. The breakeven comes at 7 years.
So in this situation , is it better to not buy the point (.125) , and pay that extra cash towards the principal?
Also, in my case the bank is giving me a little cash back if I go with higher rate.
the diff of rate is just .125;
ANOTHER FACTOR TO CONSIDER the rate will be not be lower than this in next 6-7 years; So which option is better if I have cash to buy points but not sure how long i keep that house?
thanks for the advise.
0 votes
Bob McClure, Other Pro, Walled Lake, MI
Fri Feb 19, 2010
good afternoon....i have done residential mortgage financing in michigan for over fifteen years.....my sugestion is to focus on your quoted lowest interest rate, but don't be consumed by it...if you pay the minimum costs, then your interest rate will be very slightly higher than paying points to buy it down.......there is a recapture time where you must stay in the loan for a set period of years in order to realize the savings that paying the point(s) gave you...in the meantime, if rates drop...and you refinance again to lower your payment....the points (or most of the cost) you paid in the loan you will now be paying off, is now just money you will never see...paying the minimum cost to get the best rate you can find is my suggestion..even a no cost loan.......then when you refinance, it is free with no recapture time..i hope that helps...best regards......bob mcclure.....first preferred mortgage- southfield, michigan.....
0 votes
Anna M Brocco, Agent, Williston Park, NY
Fri Feb 19, 2010
What are your projected finances suggesting--what is you loan officer suggesting--A determination only you can make.
0 votes
Tom and Joan…, Agent, Boston, MA
Fri Feb 19, 2010
Home Buyer:

The answer to your question depends on your monthly cash flow and how long you plan to be in the home. Most people that buy down points are doing this to have a lower monthly payment and to pay less in interest over the life of the loan. If you are planning on staying in the home for a long time then I would buy the rate down with points and then when you have a little extra throw that towards the mortgage. Best.
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