On Sunday, June 8, 2014 3:18:23 PM UTC-4, o m e H o m e G u y wrote:
trader_4 wrote:
Here's a thread where residential Canadian purchasers are talking
about having done buy downs, ie points:
http://army.ca/forums/index.php?topic=82975.0
"I'm hoping others are willing to share their experiences regarding
mortgage rate buy downs via the IRP program."
"I'm curious how many have taken advantage of this? We did for our
first house via the IRP program and have really benefited from a
low interest mortgage."
So, first time buyers in Canada are using it, understand it, but
it's way beyond Home guy.
Explain how you can possibly come out ahead by paying up-front to reduce
your mortgage rate when instead you can apply that same payment to
increase your downpayment.
Been there, done that. It lowers the interest rate and the monthly
payment for the duration of the loan. If you can afford and qualify
for a payment of $2000 a month, but you can't qualify and afford
a higher payment, then paying a couple points could mean you can
get the mortgage and the lower payment, while without it you can't.
I also explained to you that points are tax deductible, so if you
pay $3000 in points it's really only costing you $1950. And after
you recoup that amount, you're ahead in paying less interest for
the rest of the loan.
Individual home owners do not negotiate any sort of "buy downs"
with banks when they negotiate their mortgage.
See the thread example cited where buyers did exactly that.
I've never heard of this, but then again it's been 14 years since I had
to deal with getting a mortgage.
If you can afford to throw extra money at the bank for a buy-
down, you can just as easily throw extra money into the
downpayment and end up with a smaller mortgage (and hence
lower mortgage payments) so the concept of a "buy down" doesn't
really make any sense.
Yes it does. Go use one of the calculators and you'll see that if
you spend $3,000 on points, you'll lower the monthly payment
significantly more than if you put down $3,000 more as downpayment.
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Mortgage Points: What's The Point?
By Lisa Smith on August 10, 2012
http://www.investopedia.com/articles...gforpoints.asp
The structure of home mortgages varies around the world. Paying for
mortgage points is a common practice in the United States and, at least
according to anecdotal evidence, it may be a uniquely American approach
to home financing.
What Mortgage Points Are
Mortgage points come in two varieties: origination points and discount
points. In both cases, each point is equal to 1% of the total amount
mortgaged. For example, on a $100,000 home, one point is equal to
$1,000. Origination points are used to compensate loan officers. Not all
mortgage providers require the payment of origination points, and those
that do are often willing to negotiate the fee. Origination points are
not tax deductible.
Discount points are prepaid interest. The purchase of each point
generally lowers the interest rate on your mortgage by 0.25%. Most
lenders provide the opportunity to purchase anywhere from zero to three
discount points. We will focus mainly on discount points and how they
can decrease your overall mortgage payments. It is important to note,
however, that when lenders advertise rates, they often show a rate that
is based on the purchase of points.
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What a lot of mumbo-jumbo those "points" are.
If you don't want to pay points there are plenty of no points
mortages available here. If you want a lower rate, you can get
one with points. What's the problem with people having a choice?
I never said that paying points are a good idea, for most people.
I can tell you that it's not common here in Canada to have a mortgage
where these points are an option.
As the blurb above implies, you're pre-paying a part of your interest,
and as the rest of the article explains, whether it pays off in your
favor depends on how long you live in the house.
That's how it works. So, again, what's your problem?
-----------
Consider the following example:
* On a $100,000 mortgage with an interest rate of 6%, your monthly
payment for principal and interest is $599.55 per month.
* With the purchase of three discount points, your interest rate would
be 5.25%, and your monthly payment would be $552.20 per month.
Purchasing the three discount points would cost you $3,000 in exchange
for a savings of $47.35 per month. You will need to keep the house for
63 months to break even on the point purchase.
No, because as previously explained, points are tax deductible. If you're
in the 35% bracket, you'd be even in just 41 months and ahead after that,
in the USA.
Since a 30-year loan
lasts 360 months, purchasing points is a wise move if you plan to live
in your new home for a long time. If, on the other hand, you plan to
stay only for a few years, you may wish to purchase fewer points, or
none at all.
That's correct, that's how it works.
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Regarding mortgage terms:
http://worthwhile.typepad.com/worthw...icans-can.html
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For example, in Canada the longest term for which a mortgage rate can be
fixed is typically no more than ten years, while mortgage maturities are
commonly 25 years.
OMG. If that were going on in the USA you'd say it was a time bomb
and people are getting screwed. What happens if after 10 years rates
are 3x what they are today? And given that they are extraordinarily
low right now, that's a real possibility. What's wrong with you
Canadians and your country? Here you can get a 20 or 30 year fixed
rate mortgage.