In article ,
John A. Weeks III wrote:
In article ,
(D. Gerasimatos) wrote:

In article , Una wrote:

If you are going to prepay, then prepay the principal, not
the interest. Which means: do not buy points! Get a smaller
mortgage or make prepayments as you go along. An advantage
to prepayments is that if your cash flow gets tight, you can
suspend making them.


I disagree with this advice. Buying down the rate can save thousands
over the life of the loan.

But in general, the cost of the points is not worth the
savings in interest.


Like someone else said, it depends.


I just did a sample loan at eloan.com using a hypothetical $315,000
mortgage. Right now, one can save 0.5% interest by buying 1.5 points
on a 30 year fixed mortgage.


With points, the payment is $1991/month.

Without the points, the payment is $2096/month.


The points cost $4725. The breakeven point is after about 4 years
(45 months).


This isn't accounting for having the $4725 invested for 4 years, nor for
having the $105/month invested. I am also not taking into account tax
deductions (both for the points and interest paid).


Still, 4 years is not that long. Most people move after 7 years. I have seen
scenarios (depending on the mortgage market) in which the situation can be
even better than this particular example.


Dimitri