WWYD-POLL: Mortgage Rate and Buying Points

Please help, we're kind of on opposite sides of the fence here.

Option 1
5.375%, 45-day lock, no points

Option 2
5%, 30-day lock, 1 point
Upfront cost: $3,849
ROI: just over 43 mos
Monthly savings: $89
Savings over remainder of 30 year loan: $28,242

Option 3
4.875%, 30-day lock, 1.25 points
Upfront cost: $4,811
ROI: just under 41 mos
Monthly savings: $118
Savings over remainder of 30 year loan: $37,668

We realize that if we do it, it's really either option 1 or 3 - if we're going to buy the points, we make out $9,426 better with option 3 than option 2 and have a shorter ROI.

The main issue is we're pushing it with savings as it is, esp since I'm going on mat leave almost immediately after we buy the house. We're using some of the proceeds from the sale of our co-op to finish paying off my car; if we do this we would pay off the car less the $4811 for the cost of the points and pay it after DH's bonus in December instead. The other issue is that the points lock is 15 days shorter than the no points lock. Our on or about is July 31 which is longer than 30 days BUT the mortgage approval already came back 2 weeks early so we may have shaved 2 weeks off the timing right off the bat, which would put us well within that 30-day period.

WWYD?

(no other - these are our only options so they're your only options too )

Message edited 6/25/2009 4:13:22 PM.

Re: WWYD-POLL: Mortgage Rate and Buying Points

how long do you plan on being in the house? you can do the math to see if its worth it with the points.....

Re: WWYD-POLL: Mortgage Rate and Buying Points

Re: WWYD-POLL: Mortgage Rate and Buying Points

Is this your long-term house, or a starter? If it's going to be your home for the long-haul, I'd go with Option 3. The only thing that makes me nervous is the on or about date of July 31 and the 30-day lock expiration. It's not just about being ready to close on your end, the seller has to be ready too and I believe seller has 30 days from the on or about date to close. It seems risky to go with a lock that expires before this time period ends.

We bought a point to lower our rate to 4.5, but we made sure the lock-in period covered the 30 days from the on or about date.

There are silly things that can pop up and delay the process. For us, our bank had an issue with the basement stairs and wouldn't sign off on our mortgage until they were repaired, so by the time the repair was made and the bank went back out to reinspect... Bottom line is, it's risky to assume you'll close before or even on the on or about date.

Re: WWYD-POLL: Mortgage Rate and Buying Points

Remember that you can take a tax deduction on the points you pay too. So take that into consideration.

Re: WWYD-POLL: Mortgage Rate and Buying Points

I agree with the previous poster, it is a good idea to have some money in the bank,

BUT

that being said - what is your bailout plan if you run short of an emergency happens? Do you have family that could help you out? Do you have good credit and low debt and could qualify for a loan? How much per month after you move can you save to build back up your emergency fund.

IMO, if you spend your emergency fund and it saves that much over the life of the loan, and you plan to stay in this home, it's worth it - as long as you are working towards building that emergency fund back up as soon as you move and you have another option (even if its not ideal) in case the worst happens and DH looses his job, etc.

Re: WWYD-POLL: Mortgage Rate and Buying Points

I vote for option 3 since you plan to stay for a while.

Re: WWYD-POLL: Mortgage Rate and Buying Points

Thanks everyone!

A few things -

1) we do plan this to be "our" house (we've already done the starter home thing with the co-op and compromised a little on location to get the size we're getting so we can stay);

2) we wouldn't be touching our savings for this but we would not pay off my car entirely, which freaks me out a little but it's a matter of a few mos difference;

3) the seller wanted a July 10th closing so he is ready to go when we are. Same with our buyer - essentially everything is hinging on us and as soon as we're ready to close, they are as well.

I'm pretty sure we're going to go with the lower rate and points but FYI for anyone looking - rates dropped FOUR times yesterday!! By 6pm last night that 4.875 was available for 1 point with a 30 day lock, 1.25 points for a 45-day lock

Message edited 6/26/2009 7:38:05 AM.

Re: WWYD-POLL: Mortgage Rate and Buying Points