RATES and POINTS  

Sure, we have low rates… just not for you!  Have you heard this before? Many of my new clients have told me horror stories like that over and over.  There is a reason.

These days, Interest Rates are based on…

Ø      Your credit score

Ø      Loan amount

Ø      Loan-To-Value

Ø      Type of loan

o       Cash out, No cash out, Primary home vs. Investor home, The State you are in.

Then you need to consider the cost factor.  Cleary appraisal, title, underwriting fee’s, etc. are fixed, but points are not.  To keep the cost (and your loan balance) down, you should select a zero or low point loan.  However, that might not be in your best interest.  Depending on how long you plan on staying in the home should dictate how many points you should buy to buy down the rate.  Each point will buy down the rate by about ¼%.  

Each Point represents 1% of the loan amount.  One (1) point on a $200,000 loan is $2000 (1% of $200,000 = $2000).  Three (3) points would be 3% or $6000.  

If you have the equity, should you invest $6000?  The answer comes from another question, how long do you plan on staying in the home?

For example, a zero point loan might yield an interest rate of 6%, but a 3 point loan might buy down that rate to 5%.  The 30-year payment on a $200,000 loan at 6% is $1199.10, but the 30-year payment at 5% would be $1073.64.  This is a savings of $125.46 per month.  

What is your break-even point?  The answer is 47.8 months or almost 4 years.  Which means it will take 47.8 months to recoup the $6000 investment and then you will be saving $125.46 each month for the remainder or your loan.  Over a 30 year period that is $39,143.  I’d pay $6000 all day long to save $39,143.  However, if you live in the home for less than 47.8 months, you should elect a zero or low point cost.  The dollars have to make $ense.  

Call me should have any questions or need mortgage financing.

Dan Palumbo

Office:  732-797-0117  Ext. #201

For an accurate quote and to assist you further, please complete the following and fax to my attention at 732-797-0414.  

Home Value:                $_____________  

Approx. Loan Balance:  $_____________  

Credit Score (if known):     ____________  

[  ]Purchase

[  ]No-Cash Refinance  

[  ] Cash out refinance (including paying off 2nd mortgage or debt consolidation)  

[  ]Primary Home    [  ]Investor Home  

What State is the subject in?            __________  

Years planning on living in the home? _________