Good Morning to all!

I want to refinance my current loan. I am suposed to close mid March. My lender gave me two options: 5% with no points or, 4.75% with .500% ($ 1,000)discount point. Data: 30 yr. fixed, loan amount 200K, appraisal 290.5K, score 790, CC $ 3,600 in both cases. Which option do you think I should take? 

Thank you,

Christian

Christian,

Ask your lender to do a break even analysis and show you how long each take to recoup your costs vs. savings.  If both fall around the same take the lower rate.  If you're staying in the property longterm (well past the break even) buying down will always make financial sense.

And hey, you get to say you have a 4% interest rate!

Thank you Clem. The break even term for 4.75% is about 2 months longer than for the 5%, so I think I'll go for it (unless the rates go down so I won't have to pay any points). Thanks again!

I'm sorry, but the break even point is not 2 months, it's 2yrs.

1/2 pt is 1/2 point, regardless of how you look at it. So, lowering your interest rate .25% (from 5% to 4.75%) means that in the first year, you will pay .25% less interst in that year, or .5% in interest in 2yrs.

If you can say beyond a shadow of a doubt that you will be in the home for a length of time, pay the points to get the rate down.

Finally, don't sit on standby waiting for rates to go lower. I can't tell you the number of people that miss out on the fun by sitting on the sidelines waiting. If it benefits you now, lock it.

He wasn't saying the break even point was 2 months he was saying the difference between the 2 rates when taking into account the upfront cost to get the lower rate was a couple of months different when comparing the 2 programs.

And I agree, don't wait. Lock and live your life happy. Good things DO NOT come to those who wait.

The break even on the buydown is :

$30/mo lower payments on the 4.75% rate.

$1000 more to get the 4.75% rate

1000/30 = 33.33 months to break even

He wasn't just concerned on the buydown break even he was comparing between the 2 loan options.  So the first might be 35 months break even and the discount at 37 months (or what ever it was it was 2 months different).

It always gets a little complicated when the loan amounts vary between buy down and no buy down (because of the increased fee's rolled in).

Either way, lock and go on with your life. This stuff will drive you mad.

Let's put the math aside.  If you are going to be there for 4 or more years, I would take the lower rate.  Under 4 years, take the higher rate.

Lock it in and relax.

Thank you all for your advise! Indeed, this stuff drives me crazy, with all those different analisys, forecasts...In the mean time, things have changed, and I was offered a 4.875% with no discount points! I took it, lock it, set the closing date, and move on! Hallelujah!

Congrats... and the ego gets a boost too!

Kent, Clem, David, thank you very much!

christian