Are points worth it?

3 Replies

I am trying to determine if it is worth paying points down on my mortgage refinance. Basically the break even point is 37-38 months and it's a property I plan to keep long term as a rental. So I see not real reason not to pay the points.

Any reasons I maybe overlooking?

The answer is......it depends? LOL If you know that your going to hold the mortgage at least to the point of the pay back or break even, then yes, points are worth while. Why do I say that? Because they help give you a lower payment and anything after the break even point is where your saving money per month by however much your saving over a loan with no points?

The average payback time should be 3-7 years. Anything longer than that doesn't make good financial sense?

Don't forget that points are tax deductible. So figure out your tax bracket and realize that you get to not pay taxes in the amount equal to the deduction. If you factored in your deduction, your payback time is actually less months? Most of my buyers and refinances have discount points, its never an issue when I show them the payback time and the tax deductibility. 

I hope this helps. 

Originally posted by @Michael Osborne :

I am trying to determine if it is worth paying points down on my mortgage refinance. Basically the break even point is 37-38 months and it's a property I plan to keep long term as a rental. So I see not real reason not to pay the points.

Any reasons I maybe overlooking?

I always tell people it's a math problem that only they can solve.  If you're going to keep the property, it makes sense and if it's a quick in and out, it's not.  It's just that simple.

Originally posted by @Michael Osborne :

I am trying to determine if it is worth paying points down on my mortgage refinance. Basically the break even point is 37-38 months and it's a property I plan to keep long term as a rental. So I see not real reason not to pay the points.

Any reasons I maybe overlooking?

A "normal" break even point on discount points is 5-8 years. And if you google, the google results will tell you that ~1 point gets you 0.25% to rate. Right now points are cheap, basically half off or twice as cost effective (take your pick how you want to phrase it), which is why you are seeing ~3 year break evens. A lot of lenders are priced at ~1 point getting you ~0.5% to rate, very unusual.

7 years (typical break even) is a total guess. People die, they get divorced, they get laid off and have to sell, etc. 

3 years (right now) is a lot more solid. You should have a pretty decent idea on if you will own this house and be in that financing for at least 3 years.

Over half of my loans right now are with points for that reason. Ultimately it's up to you, but over half of my clients are electing to buy the rate down. It's been a long time since you saw a non owner occ loan down in the 3s... 

It's actually a slightly "bad" thing for loan originators, since past clients refinancing to lower their rate is also a source of business for us. With these owner occupants buying it down to the low 3s with just 5% or 10% down, and investors buying it to the high 3s low 4s, there's a slim chance they will ever refinance to lower the rate.