When to buy a loan discount point...


When to buy a loan discount point...
By Scott Rogers • November 5, 2008
One option you have when obtaining a mortgage is to pay a loan discount point to lower the interest rate on your mortgage. In most cases, a loan discount point will cost 1% of the loan amount, and will lower the interest rate by 0.125% over the life of the loan. For example, on a 30 year, $200,000 loan at 6.5%, with no discount points, your principal and interest payment would be $1,264.14. If, however, you paid one point, the $200,000 loan at 6.375% would require a principal and interest payment of $1,247.74. The cost of the loan discount point would be $2,000, and it would save you $16.40 each month. Thus, it would take 122 months (10 years, 2 months) before you started to realize any savings. However, to take it one step further, we should include the tax benefits of having bought the loan discount point. The $2,000 is tax deductible, thus if you are in the 25% tax bracket, you would have a tax savings of $500, and only need to recoup $1,500 of savings. By including this tax perspective, it would only take 92 months (7 years, 8 months) for you to start seeing savings for having bought the discount point. Bottom line --- in the examples above, if you don't plan to own the house for more than 7-ish years (or 10-ish years), it is likely not worthwhile to buy the loan discount point. Receive Updates by Email Recent Articles: Is There A Price You WOULD Pay For This House? There Are Plenty Of Types Of Houses That Exist That Just Are Not Available To Purchase Home Sales By Price Range In The City Of Harrisonburg Are You Compromising On Aspects Of Your Next Home That You Can Or Cannot Change Later? How Much Slower Are The Winter Months In Our Local Housing Market? Rockingham County and New Home Sales Drive Surge in Area Housing Market Find The Balance Between Optimistic And Realistic Home Pricing Room Size Is Difficult To Understand Solely From Real Estate Photos How Much Would You Value Not Having To Prepare Your Home For Showings? One Out Of Four Homes Is Taking Longer Than A Month To Sell
Have any questions? Contact Scott Rogers at 540-578-0102 or scott@funkhousergroup.com
Based on information from the Harrisonburg-Rockingham Association of REALTORS® or its MLS, for the period Jan 1, 2000 through Nov 22, 2024 (unless otherwise noted).
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