Point, what's your point? : Rooftop Views

Rooftop Views

Point, what's your point?

Interest rates are creeping up again. Maybe a home buyer can pay some points to the lender to get the rate back down and lower their monthly payment. Is it worth it to do that?

The simple answer to that question is, it depends. You have to do a little math and figure out the return - or time frame - required to take advantage of a lower rate.

Let's take an actual example. You want to get a 30 year fixed rate mortgage with no points and no origination fees. The average rate for that loan is 6.5%. If you wanted to reduce the rate to 6.0%, what would it take?

Loan Amount $200,000 $200,000

Interest Rate 6.50% 6.00%

Points Paid 0 $3,000

Principal & Interest Payment $1,264 $1,199

Monthly Savings 0 $65

Months to Break Even 46

The question in this example is, is it worth more to have the $3000 you would pay in points up front for other purchases - like a new frig - or is it worth paying the $3000 knowing it will take almost 4 years to break even?

Of course, this is merely an example. Your mortgage lender can give you real world figures for you to base your decision on.