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I have a 162,000 dollar loan. The mortgage company is quoting me 4.875 with 1 point. Would it be worth paying another 1,620 to buy another point to drop my rate to 4.575? I plan on living here for a while, but would it be better to put that $1,620 toward my principal at the start?
This should be real easy to figure out. For $1620 you can reduce your interest rate by .3%. On $162000, the .3% lower rate will save you approximately $480 per year in interest (162000 -.3). So, you have a break even point in just under 4 years. If you are keeping this home for that long, than pay it. If not sure, or you know you wont be there that long than dont pay it.
Also, points paid are tax deductible, but consult your cpa or tax advisor. On a refinance into a 30 year mortgage, you can only deduct 1/30th each year. So, if you are paying $3240 in points, you can deduct $108 per year. If you sell this home or refinance, than at that time you deduct the remaining points. For example, if you sell after 5 years, than the last year you deduct 25/30th of the points or $2700. On purchase loans, the entire points paid are deductible that year.
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