Does it make sense to pay points on a home loan?

[The Sauce]

In general is this a wise idea or should I just put that money down on the house and get a smaller loan?

 

[woowoo]

Only if your gonna be there for a long time.....

 

[The Sauce]

Planning on a 15 year fixed

 

[dirtboy]

Paying points is generally not a good idea. I would just put more down and pay extra.

 

[Mermaidman]

Pay points if you are sure that you'll stay in the house long enough to take advantage of it. There are calculators at sites such as bankrate.com that will let you compare. It sounds like your first house and you're young, so chances are that you won't stay at this house very long. Don't pay points.

 

[Vic]

As a general rule, 1% fee = 1/4% rate. ROI usually occurs after 5 years for each point. This means that if you kept the loan for only 4 years, you would lose money from buying down, but that if on the other hand you kept the loan for all 30 years, you would save a considerable amount.

Bear in mind that there is no free loan. The lender is always making the opposite bet than you.

 

[The Sauce]

Thanks for the advise. Looks like no points for me. Even if I did over 15 years it would only save me a few thousand over putting that money down up front....definitely not worth the risk.

 

[Kelemvor]

Points are a BAD idea since rates are so low. If a mortgage company that tries to get you to use points, you should walk away and find a new company. If you need a good mortage person, let me know as my Brother In law does that and got us an awesome deal.

 

[Vic]

Originally posted by: FrankyJunior
Points are a BAD idea since rates are so low. If a mortgage company that tries to get you to use points, you should walk away and find a new company. If you need a good mortage person, let me know as my Brother In law does that and got us an awesome deal.

Sigh... :roll:

The time to pay point(s) IS when rates are low as the likelihood of keeping the loan for an extended period is much higher. The time not to pay point(s) is when rates are high, because then it is likely that the loan will be refinanced later when rates come back down.

The one guarantee I have found in my career in financial services is that people always tend to do the opposite of what they should do. They buy high and sell low, they buy down when rates are high and they refuse to when rates are low, and they take out ARMs when rates are low and fixed's when rates are high.
God only knows why...

 

[dullard]

Originally posted by: Vic
and they take out ARMs when rates are low and fixed's when rates are high.
God only knows why...

Hey we have our reasons. Take me for example. I've got a project that I'll be working on for ~4 years. But then after that, there is virtually no chance for future work in this city (or even state). So I'm buying a house with a 5 year ARM (when rates are low). It'll save me many thousands of dollars over a fixed loan. And I'll be moving anyways so I'll need a new loan when I move.

 

[Vic]

Originally posted by: dullard
Hey we have our reasons. Take me for example. I've got a project that I'll be working on for ~4 years. But then after that, there is virtually no chance for future work in this city (or even state). So I'm buying a house with a 5 year ARM (when rates are low). It'll save me many thousands of dollars over a fixed loan. And I'll be moving anyways so I'll need a new loan when I move.

Ok, well that makes sense. I understand that not all circumstances are the same, but vary according to the individual borrower.
Like I posted earlier, on this issue of points, whatever bet you make the lender is making the opposite bet. Do what works best for you.

 

[dullard]

Originally posted by: Vic
Do what works best for you.

Someone should invent a way to have a home mortage that doesn't need to be closed and a new one reopened every time you move. The current system is such a waste of resources on everyone's part. That would work best for me. Oh well back to reality.

 

[spidey07]

Originally posted by: Vic

Originally posted by: FrankyJunior
Points are a BAD idea since rates are so low. If a mortgage company that tries to get you to use points, you should walk away and find a new company. If you need a good mortage person, let me know as my Brother In law does that and got us an awesome deal.

Sigh... :roll:

The time to pay point(s) IS when rates are low as the likelihood of keeping the loan for an extended period is much higher. The time not to pay point(s) is when rates are high, because then it is likely that the loan will be refinanced later when rates come back down.

The one guarantee I have found in my career in financial services is that people always tend to do the opposite of what they should do. They buy high and sell low, they buy down when rates are high and they refuse to when rates are low, and they take out ARMs when rates are low and fixed's when rates are high.
God only knows why...

bwahahah! I know what you mean.

oh well, thank goondes we have the mortgage god on the forums.

 

[Mermaidman]

Originally posted by: dullard

Originally posted by: Vic
Do what works best for you.

Someone should invent a way to have a home mortage that doesn't need to be closed and a new one reopened every time you move. The current system is such a waste of resources on everyone's part. That would work best for me. Oh well back to reality.

So there is no such program where one could "move" a mortgage when selling and buying? It's job security for the mortgage industry 😛

 

[Vic]

Originally posted by: Mermaidman

Originally posted by: dullard

Originally posted by: Vic
Do what works best for you.

Someone should invent a way to have a home mortage that doesn't need to be closed and a new one reopened every time you move. The current system is such a waste of resources on everyone's part. That would work best for me. Oh well back to reality.

So there is no such program where one could "move" a mortgage when selling and buying? It's job security for the mortgage industry 😛

No, that's not it at all. It is because the home itself, the collateral, is a crucial aspect of the loan. They wouldn't lend you all that money without the home.
Also, when people move (sell their old home and buy a new one), they usually buy a bigger house and take out a larger loan. Or they may move accrued equity from one home to another and use that opportunity to get a smaller loan. Either way, everything changes.
There really are only 3 aspects to a mortgage loan: credit, capacity, and collateral. New collateral, changed credit profile, and usually new income qualifications (capacity) because of a job change, loan amount change, etc., and you have a whole new loan.
Money may be abstract, but it is not imaginary. Hard numbers are hard numbers, you can't just wish them away.

Anyway, just because you buy one gallon of milk, does that mean you should get free milk for the rest of your life?

 

[The Sauce]

Thanks for all of the advise again. I never realized before this how much loan sellers were like used car salesmen. Lots of hidden fees, juggling numbers, switching rates around...it's horrendous. You really need to know exactly what you are doing before stepping into this mess. The original bank I was approved at called a few days ago and said that rates for a 15 year fixed had just gone up and were around 6% now. They thought it was a closed deal. I started shopping, getting better rates, comparing fees, suddenly it came down to 5.5%. Then at the last minute I was planning on using another bank and I get a call for another 0.125% off...sigh. Well I got a good deal but it was a huge pain in the ass to have to learn it all from scratch without any advocate to help me through.

Anyway, VIC, what you said makes a lot of sense about buying points when rates are low and keeping the loan a long time...makes a lot of sense. However I do plan to prepay considerably and it would not make sense to do that and put a lot of points down. Besides, I kinda need the money now. I'll be flat broke by the time this is over.

 

[Vic]

Glad I could help. Like I said, do what works best for you. That's the most important thing.

Sorry to hear you got a crappy lender there. Not all of us are like that. Personally, I hate those games. Won't play them on my customers and don't tolerate it well when customers try to play them back on me (which some do, believe me).
All's well that ends well though. Just make sure the figures match at closing.