How to calculate if buying points on a mortgage is good in my case?


How do you decide if buying points on a mortgage will work for you? Well, basically you could calculate your monthly payment with and without buying points. The amount you paid to buy points on your mortgage divide by the difference in the monthly payment to arrive at the break-even period.

For example, if you paid $2000 for one point on a $200,000 mortgage loan and the savings in the monthly payment are $20, the break even occurs after 100 months, which is about 8 years. That is, if you are staying in your home for 8 years or less, buying points is not worth it.

However, usually there are other factors to consider when buying points on a mortgage. Mortgage points are tax deductible in the year the loan was closed and also, sometimes you could use cash towards the down payment instead of buying points on the home loan. Also, the seller could pay the points, if the lender agrees, and they will still be tax deductible to the buyer's benefit.

Run the calculations before buying points on a mortgage. The good thing about points is that they are tax deductible to a great extent depending whether you paid them for a refinance or purchase, and whether other loan costs were included in the points, in which case they are not tax deductible.

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