Mortgage points question

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scsiguru
Posts: 108
Joined: Sun Jan 23, 2011 12:44 pm

Mortgage points question

Post by scsiguru »

I'm currently working with a lender to get a conventional loan on a home my wife and I just purchased. He gave me a couple of scenarios - one with points and one without. I calculated the break even period and it would be around 5 years. I'm thinking that with interest rates now over 6% for a 30 year loan that the chance I'll refinance in the next 5 years is pretty high. I haven't applied for a loan in years so any suggestions are appreciated.
MrJedi
Posts: 3540
Joined: Wed May 06, 2020 11:42 am

Re: Mortgage points question

Post by MrJedi »

I never pay points. In fact I usually opt for lender credits instead (effectively negative points). Likelihood is just too high for refinance or moving.
AnEngineer
Posts: 2414
Joined: Sat Jun 27, 2020 4:05 pm

Re: Mortgage points question

Post by AnEngineer »

scsiguru wrote: Tue Mar 21, 2023 7:17 am I'm currently working with a lender to get a conventional loan on a home my wife and I just purchased. He gave me a couple of scenarios - one with points and one without. I calculated the break even period and it would be around 5 years. I'm thinking that with interest rates now over 6% for a 30 year loan that the chance I'll refinance in the next 5 years is pretty high. I haven't applied for a loan in years so any suggestions are appreciated.
Consider not just the breakeven point, but also how it compares to other alternatives, i.e. investments, that you would use the money for instead of points.
Topic Author
scsiguru
Posts: 108
Joined: Sun Jan 23, 2011 12:44 pm

Re: Mortgage points question

Post by scsiguru »

Thanks for the great (and fast) replies! I'm going to forego the points.
exodusNH
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Joined: Wed Jan 06, 2021 7:21 pm

Re: Mortgage points question

Post by exodusNH »

scsiguru wrote: Tue Mar 21, 2023 7:17 am I'm currently working with a lender to get a conventional loan on a home my wife and I just purchased. He gave me a couple of scenarios - one with points and one without. I calculated the break even period and it would be around 5 years. I'm thinking that with interest rates now over 6% for a 30 year loan that the chance I'll refinance in the next 5 years is pretty high. I haven't applied for a loan in years so any suggestions are appreciated.
Keep in mind that 6% isn't particularly high from a historical perspective. It's the 3% loans that are the outliers.
alfaspider
Posts: 4816
Joined: Wed Sep 09, 2015 4:44 pm

Re: Mortgage points question

Post by alfaspider »

I don't think the answer is to "never" pay points. It needs to looked at on a case-by-case basis. It depends on what they cost, your likelihood of moving (obviously can't be perfectly predicted, but most people have a sense of whether they at least intend for the home to be a "forever home"), and the current interest rates. There's going to be a breakeven point after some period of years after which you are better off having paid the points. You'll need to realistically appraise your chances of moving or refinancing before that point.

I think points made a lot more sense when rates were at all-time historic lows because the likelihood of a better rate via refinance was probably a lot less. Today, I think there's a much better chance you could get a rate better than the "with points" rate by simply waiting until interest rates go down and refinancing.
Admiral
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Joined: Mon Oct 27, 2014 12:35 pm

Re: Mortgage points question

Post by Admiral »

I paid a point in 2016 during a refinance to get to a 15 year loan at 2.25%. Still in the house, forever home more or less. Worked out well for me. No move, no refinance. At 6% I would think twice, though, as that's a number that's ripe to be refinanced.

Only you know what your plans are.

As an aside, you say
I'm currently working with a lender to get a conventional loan on a home my wife and I just purchased
This is confusing, as it sounds like you're getting a mortgage for a home you already own. Usually you get the mortgage, then buy the home.
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