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Lets see how stupid. $1500 discount point on a purchase loan is tax deductible. Not sure of your tax bracket but lets say it is 25%. So, the true cost of the discount point is $1500 less the deduction which makes the true cost $1125. On $150,000, the .25% lower rate would save you $375 per year in interest which means you would break even in 3 years. Wow, looks like it makes sense. Still surprised after all the homes you have bought and sold you were yet to grasp this concept. next time work with a professional broker that can help you better understand.
Sorry buddy, but your calculations are incorrect. You might save $200 per year on a 1/4 of 1% reduction.
Then you have to figure that the mortgage broker wants to roll that "savings" into the mortgage and spread it out over 30 years, which actually more than triples the cost of the initial buy-down.
In the end, if taking the advice of said mortgage broker, the typical homeowner would end up paying over $5,000 for that 1/4 of 1% buy-down point.
And by the way, all the fancy jargon about "tax savings" is incorrect as well. It's the interest on principle that's tax deductible. And here you are trying to argue that less interest paid equals more tax savings...
That said, we haven't even begun to talk about the screw-job most homeowners receive due to PMI, have we? What do you suppose the average homeowner, with a $150,000 mortgage, pays out in PMI over the term of that loan? Would you care to talk about that one for awhile, or would that expose too many of the fraudulent practices of the corporations who employ low-enders as mortgage brokers?
No wonder so many people get screwed over so badly.
Last edited by Omaha Rocks; 10-08-2009 at 08:52 AM..
Obviously you are not real good with math. 150,000 times .25 equals $375. Can you explain how you came up with $200. However, lets use $200 per year in savings. $1125(cost of point after tax deduction) means you break even in 1125/200 just under 6 years. additionally $200 savings with a $1125 investment(look at the point paid as an investment) means you are getting a rate of return of 17.7% for 15 years. That isnt a bad rate of return, guaranteed for 15 years.
Than, lets look this way. A 15year loan at 5.125% makes payment $1195. A payment at 4.875% makes the payment $19 dollars less. Now, if i paid the point to get the lower rate but made the same payment as you, i would pay the house off in 5 less payments. 5 payments at $1195 means i paid $5975 less than you. Or saved $398 per year in interest.
Those numbers are correct. And yes, less interest paid is more savings. Now granted at the higher rate you would have a larger deduction due to you are paying more interest and i havent taken that into account. Also, on a 30 year mortgage the savings would be much more.
My main problem with your posts, and i apologize to the OP for hijacking the post, is your blatant discriminating. You are casting a net over all brokers as some evil, money mongering, stupid, lying, young, unprofessional theif. That is wrong. Your parents should have taught you not to do that, and i hope if you are a father you are not teaching your kids that. I can only hope all of Omaha is not like that.
No wonder our world is becoming a worse place with some people who continue to base their judjement of a group of people by the actions of some.
Last edited by Green Irish Eyes; 10-09-2009 at 05:11 PM..
Reason: The "seek help" comment isn't necessary.
I suppose if you are planning to sell before then the whole exercise may not be wise -- cost of transaction might take 7 years or more to recoup...
thanks Chet. I agree, you have to stay in home long enough to breakeven for it to be wise to pay a point or multiple points. With rates at historic lows, now is the best time to pay points. If rates were in the 8% range, than i wouldnt advise anyone to pay points cause chances are they could refinance in the future when rates dipped.
... And by the way, all the fancy jargon about "tax savings" is incorrect as well. It's the interest on principle that's tax deductible. And here you are trying to argue that less interest paid equals more tax savings...
Points are also deductible. Along with checking your math, perhaps you need to go back and amend a filing?
You would think since Omaha Rocks has bought and sold many homes he would know that points paid are considered prepaid interest because they are buying the homeowner a lower rate. Thus, points are deductible. Just surprised the professional at the local bank didnt inform him. Bet if he spoke to a broker, he would know.
Obviously you are not real good with math. 150,000 times .25 equals $375. Can you explain how you came up with $200. However, lets use $200 per year in savings. $1125(cost of point after tax deduction) means you break even in 1125/200 just under 6 years. additionally $200 savings with a $1125 investment(look at the point paid as an investment) means you are getting a rate of return of 17.7% for 15 years. That isnt a bad rate of return, guaranteed for 15 years.
$150,000 mortgage loan - at 5.00% - is $805.23 per month for 360 months.
$150,000 mortgage loan - at 4.75% - is $782.47 per month for 360 months.
Hmmmm... $805.23 minus $782.47 is how much? According to my calculator that's a $22.76 per month difference, or a $273.12 per year difference.
Maybe your "Mortgage Broker Special" calculator lies as much as most mortgage brokers do?
Yet another thing that most of these fly-by-night mortgage brokers will not bother telling you is that you'll have to live in your house an average of 8 years before you'll realize any savings due to paying for a Buy Down Points. (I say average because not all lenders charge the same price for Buy Down Points.)
Now... When you consider the FACT that the average length of time Americans own their homes is 6 years, who do you suppose is making off like a bandit by selling Buy Down Points?
My main problem with your posts, and i apologize to the OP for hijacking the post, is your blatant discriminating. You are casting a net over all brokers as some evil, money mongering, stupid, lying, young, unprofessional theif. That is wrong.
Your main problem with my posts is that I'm telling the truth. And the truth is not on your side.
Do you not bother telling people the truth when you're trying to push them into taking out ill-advised mortgage loans? Is that kind of a "don't ask don't tell" policy among mortgage brokers?
I mean, I know that mortgage brokers get paid commission on sales made, but come on. Unethical is unethical. Dishonest is dishonest.
Fortunately, consumers are starting to get MUCH smarter about the mortgage loan racket.
Your parents should have taught you not to do that, and i hope if you are a father you are not teaching your kids that. I can only hope all of Omaha is not like that.
No wonder our world is becoming a worse place with some people who continue to base their judjement of a group of people by the actions of some. Again, seek help.
Save your petty little personal insults for somebody who cares - and somebody you can bully. I am neither of those.
So... Care to talk about PMI? Would you like to - on the open forum - talk about what a scam that it is, and why
Would you like to talk about the FACT that mortgage brokers relentlessly push consumers into top-heavy mortgages, which subjects those people to an average of an extra $75-$80 per month for Private Mortgage Insurance for 20-25 years? Would you like to talk about the extra $20,000 that tacks on to the average 30 year loan on $150,000?
Would you like to talk about the PMI gravy train, or would that be embarrassing to mortgage brokers?
$150,000 mortgage loan - at 5.00% - is $805.23 per month for 360 months.
$150,000 mortgage loan - at 4.75% - is $782.47 per month for 360 months.
Hmmmm... $805.23 minus $782.47 is how much? According to my calculator that's a $22.76 per month difference, or a $273.12 per year difference.
Maybe your "Mortgage Broker Special" calculator lies as much as most mortgage brokers do?
Yet another thing that most of these fly-by-night mortgage brokers will not bother telling you is that you'll have to live in your house an average of 8 years before you'll realize any savings due to paying for a Buy Down Points. (I say average because not all lenders charge the same price for Buy Down Points.)
Now... When you consider the FACT that the average length of time Americans own their homes is 6 years, who do you suppose is making off like a bandit by selling Buy Down Points?
We're just starting to scratch the surface here!
How funny. Please read the prior posts. The numbers i was using was for a 15 year fixed rate loan. Remember, you have a 15 year fixed rate at 5.125%. Thus i used 5.125% and 4.875%.
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