POINTS

Points buy down the rate.  Each point you pay equates to about 1/4% in interest.   It takes about 3 points to buy the rate down by one full percent.  Example:  A zero point loan will be 8%, but if you pay 3 points you can lower your rate to approximately 7%.

Each point equals 1% of the mortgage amount.  ONE point on a $150,000 is $1500.

Is paying points in your best interest?   The answer comes in one question.  Will you be living in the home past the break even period?  

If you will finance $200,000 at 7% for 30 years, your payment will be $1330.60.  However, if you pay “3” points and lower your rate to 6.00%, your 30-year payment would be $1199.10.  That’s a savings of $131.50 per month.  However, it would cost you $6000 in points.  

So, doing the math, this would equal a break-even point of 45.6 months or slightly less than 4 years.  

If you will stay in the home for more than 46 months (less than 4 years), then every month after that point you will be saving $131.50.  

There are 360 months to a 30-year fixed mortgage.  360 months - 46 months = 314 months of $131.50 savings.  The total savings would be $41,291.  

If you were a dollars and sense (spelled correctly) person, it would pay to invest in points.  However, if you will not live in the property for more than 4 years, you might look into less points or a zero point option (if available on the program you choose).

To determine if paying points is an option for you, click POINTS OR NOT? and find out for yourself.

Dan Palumbo, Licensed Mortgage Banker   800-817-8743

Dan is the published author of the Mortgage Loan Officer Training Manual.  You may order one by visiting www.mortgagetrainingmanual.com

Licensed Mortgage Banker - New Jersey Department of Banking and Insurance; Licensed by the Pennsylvania Department of Banking; Virginia Licensed Mortgage Lender