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robertsmith2005 · Joined: 22 May 2009 Posts: 338 -0.48 Dollars($)

What does mean by buying points & how to calculate break even?

Realgeni · Joined: 13 Apr 2009 Posts: 1434 99.76 Dollars($)

robertsmith2005

It is called buying down points

For example if you are offered a loan at 5.5% and you want to reduce the interest rates, you can buy down the interest by payign points

For every one point you will reduce your interest by .25%

Example: if your loan is $100,000/- and yoru intrest rate is 5.5% and you want to bring ti down to 5% then you pay

$2000 upfront during the closing and your rate will come down to 5%

Good luck and feel free to ask

gmakerley · Posted: Wed Jun 17, 2009 9:40 am Post subject:

actually geni, every point will not be precisely equivalent to .25%. each lender prices loans differently, and fractions of points will result in various differences in rates.

Realgeni · Joined: 13 Apr 2009 Posts: 1434 99.76 Dollars($)

robertsmith2005

I was givign you a general answer

At the end it will depend on who you are doign the business with!

Good luck

brian3 · Joined: 09 Jun 2009 Posts: 80 21.31 Dollars($)

i haven't seen much cases where it has made sense to buy points lately. also when you calculate how much the point costs you 1% of the loan and the see how much that rate change will save you per month, for example $12. you then divide the savings per month $12 into the cost of the point $1,000 and find out that it will take you $83 months to get back that $1,000 you spent at the closing table to have that more attractive rate.....conventional wisdom says you want the breakeven point to be less than 5 years/60 months

Realgeni · Joined: 13 Apr 2009 Posts: 1434 99.76 Dollars($)

Brian3

Thats really a good suggection

I am not sure if 60 months cabe considered, rather the buyer shoudl look at how long they are goign to be in that house or when they plan to sell the house.

Good luck

Posted: Thu Jun 18, 2009 6:14 am Post subject:

Well as a breakeven point it should be considered because even if they intend to stay in the home long term they need to look at the probability of them needing to take cash out of their investment. whether that money is for school, a car, repairs, etc it really doesn't matter but somewhere aroung 95% of mortgages are held for less then seven years, so those numbers tell me that unless the payoff is 5 years or less the likelihood of the points being a benefit to the borrower is extremely low.

brian3 · Joined: 09 Jun 2009 Posts: 80 21.31 Dollars($)

Well as a breakeven point it should be considered because even if they intend to stay in the home long term they need to look at the probability of them needing to take cash out of their investment. whether that money is for school, a car, repairs, etc it really doesn't matter but somewhere aroung 95% of mortgages are held for less then seven years, so those numbers tell me that unless the payoff is 5 years or less the likelihood of the points being a benefit to the borrower is extremely low.

robertsmith2005 · Joined: 22 May 2009 Posts: 338 -0.48 Dollars($)

Hi Brian,

You are right. considering present market scenarion, we should not consider period of more than 60 months as a break even.

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