Dude, your video just saved me $12,000 that I was just about to pay to lower my rate. Now I’ll put that $12k directly as down payment. Omg. Subscribed.
I am going to make the argument for paying the points. Please let me know your thoughts. Assumptions: 1) cash on cash rate - 8% 2) interest compounded annually 3) property holding period - 10 years Let’s do some TVM calculations. Scenario 1: I don’t pay points down and invest $9,000 $9,000 compounded annually @8% for 10 years = $19,430 future value Scenario 2: I pay $9,000 for points, in return I save $133 a month. For simplification purposes, the $133 monthly savings compounded annually for 10 years at 8% = $23,121 future value After 10 years, paying for points upfront gives you a $3,691 higher return.
Good point Kyle, the borrowers need to also consider the inflation when they put $9,000 into buydown points. The reality is most borrowers usually don't have these much money to buydown points if I am right. However, for investment loan, I think most of the time it is worth to buydown points.
I might be wrong... but I think your math is off I built an excel calculator for testing these scenarios and I came up with 60 months to catch up using the $9000 for points. I think you are overlooking the increased principal you pay monthly when you spend the $9000 on points. When I removed the paid principal I got the same number (105 months) for a time to break even.
Also, keep in mind principal is not a financing cost. When comparing loan scenarios, the only thing we're concerned with is the actual financing cost of a loan.
@@WinTheHouseYouLove Wow, thanks for replying so fast. I watched the whole video, you discuss how 68 months is incorrect (and I agree). However, I don't think you are taking the increased principal payments into account when points are paid. If you pay the points down then the first mortgage payment is $85.75 less and contains $66.13 more in principal than if you used that money to pay down the mortgage. That increased principal payment accelerates the rate at which you make it to the "break even" point if you were to sell.
Hmm, I think you may be right. I reached out to the person who makes that tool to clarify. Would you mind sharing your calculator so I could look into it a bit more?
Hello can you share your spreadsheet? I would like to play with some numbers? What if there is a mortgage of 220,000 and paid 13000 for a 4.5 interest rate? Current market is 7% how long would it take to recover the points?
I use a software for those calculations and don’t have a spreadsheet to share. However, feel free to email me at kyle@winthehouseyoulove.com, and I'd be happy to help you figure it out!
@@WinTheHouseYouLove Thank you. I understand that a point costs 1% of the loan. Assuming the loan is for 100k, and I want to buy 5 points, if I use equity to pay for this, would it cost me $5,000 or 5% of $105,000 ($5,250)?
@The Average Life /Cassandra A. - I definitely agree with you and here's why.... If the buyer decided to pay down the points (going from 4.75% to 4%) by paying $9000 for it then 68 months later the amount they would have left to pay on their loan (principal) would be $248,572. However, as long as they chose a loan that did NOT have a prepayment penalty and they immediately paid their regular mortgage payment plus immediately applied that $9000 to their principal then 68 months later they would owe $239,648- which is $8924 less than the $248,572 that they would've owed had they chosen to pay down their points.
Please advise: when I do the math, it makes perfect sense to pay points, almost too good to be true, where did I go wrong? At 4.75%, the total interest paid is 263k and at 6.5%, its 215k, Isn't it worth 9k upfront?
@@WinTheHouseYouLove Thanks for replying! The video is comparing 4.75% interest rate with no points and 4.00% for 9k. I was referring to the column 'total interest' whether deciding to pay 9k in points (big difference in total interest). Is it okay to approach if points are worth it this way? Much appreciated!
22 more years on 30 years loan @4% Offered refi for 15 years. 2.375% with 2.125 points or 2.5% with 1.375 points. Is either of this good? Which one better?
Dude, your video just saved me $12,000 that I was just about to pay to lower my rate. Now I’ll put that $12k directly as down payment. Omg. Subscribed.
Awesome!!
I am going to make the argument for paying the points. Please let me know your thoughts.
Assumptions:
1) cash on cash rate - 8%
2) interest compounded annually
3) property holding period - 10 years
Let’s do some TVM calculations.
Scenario 1: I don’t pay points down and invest $9,000
$9,000 compounded annually @8% for 10 years = $19,430 future value
Scenario 2: I pay $9,000 for points, in return I save $133 a month. For simplification purposes, the $133 monthly savings compounded annually for 10 years at 8% = $23,121 future value
After 10 years, paying for points upfront gives you a $3,691 higher return.
Paying points is a solid strategy if the math makes sense for your timeline :)
Good point Kyle, the borrowers need to also consider the inflation when they put $9,000 into buydown points. The reality is most borrowers usually don't have these much money to buydown points if I am right. However, for investment loan, I think most of the time it is worth to buydown points.
Good suggestion. Thank you so much for watching!! :)
Good video, thank you for sharing
Glad you enjoyed it!
I might be wrong... but I think your math is off
I built an excel calculator for testing these scenarios and I came up with 60 months to catch up using the $9000 for points. I think you are overlooking the increased principal you pay monthly when you spend the $9000 on points. When I removed the paid principal I got the same number (105 months) for a time to break even.
Make sure to watch the whole video :) I explain why 60 is what most people assume, but is incorrect.
Also, keep in mind principal is not a financing cost. When comparing loan scenarios, the only thing we're concerned with is the actual financing cost of a loan.
@@WinTheHouseYouLove Wow, thanks for replying so fast. I watched the whole video, you discuss how 68 months is incorrect (and I agree). However, I don't think you are taking the increased principal payments into account when points are paid. If you pay the points down then the first mortgage payment is $85.75 less and contains $66.13 more in principal than if you used that money to pay down the mortgage. That increased principal payment accelerates the rate at which you make it to the "break even" point if you were to sell.
Hmm, I think you may be right. I reached out to the person who makes that tool to clarify.
Would you mind sharing your calculator so I could look into it a bit more?
@@WinTheHouseYouLove No problem, I just sent it to the business email you have on your page.
Amazing thought process
Thank you!
Hello can you share your spreadsheet? I would like to play with some numbers? What if there is a mortgage of 220,000 and paid 13000 for a 4.5 interest rate? Current market is 7% how long would it take to recover the points?
I use a software for those calculations and don’t have a spreadsheet to share. However, feel free to email me at kyle@winthehouseyoulove.com, and I'd be happy to help you figure it out!
I wonder if the return is quicker when/if you can claim deductions on your taxes from prepaying points.
Interesting! I'm not sure how the math would work out. Most people benefit more from the standard deduction though
excellent explanation, nobody teach you these things
I appreciate that! Thanks!
So if i was to stay the 30 years wouldnt it be better to pay the points as to not pay more in interest?
Good video! Can you pay for points with home equity? If so, what are considerations to keep in mind?
Thanks! Yep! You can increase the loan amount to cover the points cost. I would use a very similar method to calculate the breakeven of that.
@@WinTheHouseYouLove Thank you. I understand that a point costs 1% of the loan. Assuming the loan is for 100k, and I want to buy 5 points, if I use equity to pay for this, would it cost me $5,000 or 5% of $105,000 ($5,250)?
What is the calculator used in the video please?
It's an MBSHighway tool that' $100/mo
So buying points only buys you a .01 of a 1%.
So if my rate is 4.75 and i buy 3 points. My new rate is 4.45?
Not 1.75?
1 point is usually around 0.25% of the rate
What if you pay that towards your principle after you close? Is that the same of your last scenario?
The last scenario is showing is you paid the amount on the down payment, which would be very similar to paying it on the principal after closing.
@The Average Life /Cassandra A. - I definitely agree with you and here's why....
If the buyer decided to pay down the points (going from 4.75% to 4%) by paying $9000 for it then 68 months later the amount they would have left to pay on their loan (principal) would be $248,572.
However, as long as they chose a loan that did NOT have a prepayment penalty and they immediately paid their regular mortgage payment plus immediately applied that $9000 to their principal then 68 months later they would owe $239,648- which is $8924 less than the $248,572 that they would've owed had they chosen to pay down their points.
@@MakeWay4CJ Great insight!
Is this optional?
why are people not taking interest savings every month into consideration?
This does
Please advise: when I do the math, it makes perfect sense to pay points, almost too good to be true, where did I go wrong?
At 4.75%, the total interest paid is 263k and at 6.5%, its 215k, Isn't it worth 9k upfront?
Is that 4.75% in points? Or the rate?
@@WinTheHouseYouLove Thanks for replying! The video is comparing 4.75% interest rate with no points and 4.00% for 9k. I was referring to the column 'total interest' whether deciding to pay 9k in points (big difference in total interest). Is it okay to approach if points are worth it this way?
Much appreciated!
@Joel Lansing u have n e idea how much comments he gets, reads, n reply to bro? Smh ur an idiot
22 more years on 30 years loan @4%
Offered refi for 15 years.
2.375% with 2.125 points or 2.5% with 1.375 points.
Is either of this good? Which one better?
Both sound like solid options, talk to your loan officer about looking at an amortization table to help you choose the best one.
Win The House You Love thank you so much. Appreciate it. God bless you and and your family🙏🏼