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Ok, One of the first financial advisers I ever spoke with told me that I should not pay points when I get my mortgage. That it was better to take any extra money and pay down the note or put it on the down payment. So when I refinanced I didn’t even consider paying a point for a lower rate. So this is where Im confused. They say you should refinance if you are going to stay in the home long enough to recoup the cost of the closing costs of the refi in youir savings on your monthly payment. So wouldn’t the same advise work for paying for a point to get a lower rate? I I refinanced less than year ago and shaved 1% off my interest rate and now I am at 5 ¾ I am hearing that they are now going as low as 4 or 4 ¼ with a point. I have I owe $105,000 and want to pay it of and live in it until Im dead. Any thoughts? Refi again? Pay points? Cheapest way to refi?
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In my opinion, paying points is a strategy used to lower monthly payment amounts. Basically, I agree with your financial advisor. If I were you, I'd refinance and put down as much as I could stand as a downpayment. I'd then pay as much as I could stand monthly toward the loan until it was paid off. -
I think you have to crunch the numbers and see how it would recoup for you. In your case, it would be $1000 in savings to recoup a 1 point buy down. Depending on your situation, it may not take long to save that.
We are currently in the process of refinancing and are paying 1.5 points to buy down to a lower rate. The loan we are seeking is low, so the points do not cost very much, but we break even on all costs once we pay on the loan for 36 months (as we are currently paying the mortgage; the bank method of computation says we break even at 10 months). We also looked at doing a 2 point buy down, but the additional few dollars a month that extra would save us would take 8 years to recoup- and we plan on paying the house off in 5-6 years. So 1.5 worked well, 2 was not money saved.
Sit down when you are in the right mood and crunch, crunch, crunch the numbers!Comment
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I paid 3/4 a point to knock off .5 off the rate... recouping hte cost in 34 months... after that it's gravy. Depends on how long you will stay in the house....Comment
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It depends. I believed in this rule and we refied quite a few times when we were young (our first loan was over 8%). I now regret not buying down a point in 2003 when we refied down to 5.75%. We could have bought the rate down lower and been done with it.
Instead we ended up refinancing again. Which is something I Would prefer to avoid. This time we paid a point (maybe 1.5) to get down to 4.875%. IT certainly made sense crunching all the numbers.
I don't expect rates to get below 4%. But that's what I said about 5% when we got 5.75%. So, who knows. It's a gamble I guess.
(Though I regret not paying points on our next to last refi - it was for the best on all our other refis because rates dropped so much, so quickly. We didn't have any of those loans - 3 or 4 - for more than 2 years).Comment
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As an aside, points are tax deductible on home purchases, up front.
They are not tax deductible up front on refis. You deduct them ratably over the life of the loan. Because of this, points can be a better deal on a home purchase - you can get a decent up front tax break.Comment
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