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Personal Finances / Buying or Selling a Home


Subject:  Re: Refinancing without paying points? Date:  4/22/2001  3:25 PM
Author:  Dwdonhoff Number:  19490 of 128887

Hi Mike,

You asked;
I've been told that to figure the breakeven point you divide the cost of the points by the differential in the payment between a 0 point loan and a loan you pay points for.

Let's say you want to borrow $200,000 and it costs 1 point (1%). Let's say the differential in the monthly payment between the loan with points and the loan without points is $25 per month. The breakeven calculation would be as follows:

Cost for Points - $200,000 X 1% = $2,000
Breakeven Point - $2,000/$25 payment differential = 80 months
Breakeven Point - 80 months/12 months per year = 6 years 8 months
Is this correct?

Exactly correct! Now, fit in the exact nums per any deal in question, and you can start to see where the trade-offs come over time.

If you're expecting to be in a loan for the long-run, then pay it down as far as you're reasonably able. If you expect to be in for a shorter probability, take the higher rate and pay less in cash.

Whether you're purchasing or refinancing also makes a difference, because of the tax treatments...

Any costs you pay for a purchase, including discount points, are tax deductible in the year of the purchase... so it can be really sweet if you're buying and you know it's a long-term thing.

Costs incurred on a refi are deductible over the life of the loan.

Dave Donhoff
Lic. Mortgage Broker
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