Financing in 92127>Question Details

Martha, Home Buyer in San Diego, CA

Should I pay higher rate or points for a lower rate?I am going to stay in the house for over 15 years.

Asked by Martha, San Diego, CA Sun Apr 26, 2009

I am grtting a rate of 5.75% with 0 point Vs 5.25% with 1 point.I can afford monthly payments on both interest rates.

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Martha,

In addition to your lender, it might be wise to speak to your tax advisor. They can inform you on how the numbers best work with your particular tax situation.

Kind Regards,

Marcie Sands, REALTOR
Simply The Best Real Estate Company, Inc.
Rancho Bernardo
760-644-1562
0 votes Thank Flag Link Mon Apr 27, 2009
First, you should always pay points if you are going to keep a loan for a length of time longer than at least 5 years. Shorter than that, the benefit looses its luster and you run the risk of paying closing costs that you don't reap any benefit from.

However, unless you are obtaining a jumbo mortgage, that rate you quoted is not very good for the current market. You should be looking at something closer to 5.00% with no points (maybe .5 points on a bad day) and 4.75% with 1 point

I would highly suggest that you get another price quote and GFE before you commit to that loan. Points are not bad but just make sure you have the best starting rate before you go paying them. If you have any questions, please feel free to contact me.

Luke Allison
Bank of America Home Loans
828-777-8828
lukeallisonloans@gmail.com
0 votes Thank Flag Link Mon Apr 27, 2009
Hi Martha,

We suggest you ask your lender this question. Ask them to run the numbers both ways, with the points and without the points.

See at what time during the loan do you recover the points. In other words, if you pay the points up front, at which point in time does that investment pay off?

Best regards,

Mark and Kari Shea
San Diego Real Estate Experts
Foreclosure, Short Sale & Investment Specialists,
Development Opportunities & Traditional Real Estate
0 votes Thank Flag Link Mon Apr 27, 2009
Hi Martha,

I recommending paying the 1 point to lower your interest rate.

I’m using your rates and 1 point with a loan amount of $250,000 in the examples below to illustrate why paying 1 point to lower your rate is better.

On a loan balance of $250,000 and a rate of 5.75% your monthly p + i (Principal & Interest) payment would be $1,451.97 monthly. On the 15th year you would have paid $75,148.24 towards the principal, $186,206.36 in interest and have a loan balance of $174,851.76

On a loan balance of $250,000 and a rate of 5.25% your monthly p + i (Principal & Interest) payment would be $1,374.50 monthly. On the 15th year you would have paid $79,081.00 towards the principal, $168,392.00 in interest and have a loan balance of $170,982.00

The difference in monthly payment is $77.47($1,451.97 - $1,374.50) over 15 years that would be $13,944.60($77.47 * 180) more out of pocket by paying the higher rate verses buying down the rate by paying the 1 point(in this example 1 point would be $2,500).

If you have any other questions please feel free to call me.

Best of luck,

Tony
858-212-6933
http://www.sdHomeSold.com
Web Reference: http://www.sdHomeSold.com
0 votes Thank Flag Link Mon Apr 27, 2009
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