Are points a good buy on refinancings right now?
Filed under: Banks, Debt, Home
During the housing boom, my wife and I probably got at least a dozen solicitations a month from banks wanting us to refinance our mortgage or borrow against the equity in our house. Fees were being waved left and right as financial institutions looked to find ways to get borrowers deep in debt. But now that the real estate market is in the tank, banks are singing a different tune.As the scads of people trying to refinance know, banks are not giving anything away any longer. Those mortgage interest rates of under 5% often come with a catch called points, which are pre-paid fees. In other words, whatever savings you get off your monthly payment will be negated. The fees are tax deductible and may be worth it if they can be paid off relatively quickly.
"So, if you're going to stay in your house for a long time and can afford to do so, paying more points in the beginning may get you a better interest rate and save you more money in the long run," according to the American Institute of Certified Public Accountants.
For us, the issue is not clear cut. Though we have no plans to move, we are not sure how long we will stay in our house. The interest rate we have on our existing mortgage also is pretty good, 5.625%. Several banks told us that their rates were not much better. That surprised me but I guess given the current economic climate, they are being cautious.
Best we can tell, refinancing could save us about $150-$200, depending on whether we take the points or not. I am not convinced it is worth the bother.
Reader Comments (Page 1 of 1)
1-15-2009 @ 10:31PM
Ron said...
You really have very little clue on what your talking about. Bying down a rate is considered prepaid interest. If a 1/2 point bye a rate down lets say a quater of a point on a 200,000 loan amount it would cost 1000 dollars. The savings over a amoritzationn scehdule of 30 yrs far exceeds the cost. Try like THOUSANDS!!! Very well worth it. As far as your mortgage goes. 5.625% to a 5% has absolutely no benefit and is considered a lateral move. To obsorb the cost to do the loan which would in return raise your loan amount on that size loan amount isnt worth it. Youd save little money or none at all. It would take you years to recoop and you yourself said you dont know if yopur going to be staying in your house. If you concerned about attacking principal or are a person who wants to m,ake the money work harder for them try a bi-weekly program. It will spit out a much lower affective net rate and shave years of your loan.
Ron Miceli
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1-16-2009 @ 3:53PM
vera salmons said...
Wachovia Bank has done the same as for just getting Mortages ,loan through without even getting financial records to see if the people were able to even be able to pay. They just did not care aproved seniores like us .over appraised the house just to make a loan. They should not be bailed out by the goverment ,but made to make up to the poor people that beleived in then & should be there to help them instead of getting all that money to improve there wealth,at the expense of the ones that have to loose there homes
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1-22-2009 @ 3:45PM
Bill said...
And you were doing what exactly when the mortgage company was doing its thing? You were as guilty as they were. I am sick to death of people who knowingly accept the terms and then want to blame the mortgage company when they can't make the payments. Both parties were GUILTY. Accept responsibility for your mistakes...