Is buying down points worth it?

Question

Just spoke with my mortgage company who is getting purchased by Rocket 🚀 Mortgage.  They offered to refi my mortgage on my primary residence.  My current mortgage is 6.99%.  I am two years in on a 30 year mortgage-28 years left.

They offered to refi my mortgage to 5.34% with 14% but down plus fees, for a total of 19K rolled into the loan.

The rate seems like a good deal but I don’t like adding 19k to the UPB.

Thoughts?

Ryan Spath · Answer

That’s a fair concern a lower rate doesn’t always mean a better deal once you factor in the added costs and reset the clock on your amortization.

I’d start by running a simple breakeven analysis. Compare your current monthly payment at 6.99% to the proposed 5.34%. The difference in payment multiplied by how many months it takes to recover the $19k in added cost will tell you if it’s worth it. If it takes more than 3–4 years to break even, and you don’t plan on staying in the property that long, it probably isn’t worth it.

Also keep in mind that you’re two years into a 30-year term restarting at 30 years adds extra interest on the back end, even with a lower rate. If you do decide to refi, consider keeping your payment the same as now to pay the new loan off faster.

Ned Carey · Answer

@Carlos Silva do what @Ryan Spath said. There is no substitute for running the actual number to compare. If it is not clear how to do that ask for clarification.

My gut tells me if you are paying 14% in point is is not even close to worth it. Did I read that right ? is 14% a typo?

If you owe 100k you are saving $142 a month~. So if it costs you 19k to refinance it will take you 133 months to repay the refinance costs. If you have a $200k loan it would take you 67 months etc.

Doug Smith · Answer

Answer: Pay less attention to the rate and pay more attention to 1) Cost in $, 2) savings in $, 3) time to recoup the cost. So... (Cost to do the refi)/(monthly savings in $) = Break even in $ of months it takes to recoup the costs. How long will you hold on to the mortgage? Does that Break Even number make sense for you? Too many people focus on rate and not enough focus on actual cost. Good luck to you.

Jake Yuskaitis · Answer

the loan officer should have a table that shows how long into the loan you are breaking even. everything after that is gravy. generally it's not considered the best idea as interest paid later is most of the time better due to inflation.

Graham Nadler · Answer

As a lender I don't think there is a one size fits all answer to this if buying points is worth it and if refinancing in general is worth it.  I liked Ryan Spath's answer here about running a breakeven analysis so you know how long it takes to recoup the extra money spent on points and closing costs in general.  5.4% is well under market rate of low 6s on owner occupied mortgages right now (more for investment rates) so it might be worth paying the 2 points to get there but it depends on how much your loan amount is/how much it saves you monthly.  Like Ryan also said it depends on what your goal is with the property. Are you cash flowing now? Are you keeping it for the long term?  How much extra cash flow can you get out if you refi? How much interest do you save over time?  Do you need the lowest payment because the property is a long term rental and need it to cash flow better or is the property a short term rental that cash flows regardless. A lot of factors to consider besides just the fees and rate and a good lender should help you game plan to figure it out.

Carlos Silva · Answer

He’s telling me the par quote right now is 6.75 is the best rate I can get right now.

Carlos Silva · Answer

My current UPB is 631k, not sure why he’s using 639 to start

Jay Hurst · Answer

Go somewhere else. The curent servicer is not your friend. They know that the majority of people they offer do not shop becuse they are the "current lender" (but that is not even true, tehy are just the servicer of the loan). so they will often make high margins. It says right on the doc that it is costing you 19k to get 5.75%.  That is AWFUL.

Erik Estrada · Answer

I figured you were lumping the fees into a percentage.

I think a better alternative is opting for a higher rate to cover closing costs, keeping the principal balance untouched. Not sure how high of a lender credit they can go.

Is buying down points worth it?

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