Roo said:
Why would someone buy points? Why not use that money for downpayment? I understand that it lowers your interest rate, hence your monthly payment. However, if it's better to buy points rather than using the money for downpayment, shouldn't you only buy points and use 0% downpayment (if possible). If it's not better than downpayment, why use it at all?
Okay... here we go again, but for fun, I will play.
A $500k loan amount reduced by 1.5% $492,500 (the points you might pay) for a non-hungry broker would get you 6.75%, and after ten years you look like this...
2018: principal balance $415,049.31: interest paid $28,383.32: principal reduction $9,948.82: total interest paid $325,036.87
A $500k loan amount, at a 6.25% rate bought down by 1.5% points, and after ten years you look like this...
2018: principal balance $415,809.58: interest paid $26,350.13: principal reduction $10,592.90: total interest paid $303,711.42
Give it five more years, and the one who didn't pay points will look like a complete fool. You need to do the math for how long you plan on living there, otherwise you can look like a fool either way.
If you are like Ipo, and change your mind everyday, driving IR2 nuts, then don't pay points and get the shortest term loan you can find. But, if you are planning on being there for a while, then pay the points and get that rate down, unless you like paying more in interest over the years, then that is cool, the banks need to make some money.
