Question 1

What are mortgage points?

Accepted Answer

Mortgage points are fees paid directly to the lender at closing in exchange for a reduced interest rate. One point typically costs 1% of the loan amount and reduces the interest rate by 0.25%. Points are also called discount points and are prepaid interest that can save money over the life of the loan.

Question 2

Should I pay points or take cash back?

Accepted Answer

The decision depends on your break-even point and how long you plan to stay in the home. If you'll stay longer than the break-even period, paying points usually saves money. If you plan to move or refinance soon, taking cash back might be better. Consider your timeline, cash flow needs, and long-term financial goals.

Question 3

How do I calculate the break-even point for points?

Accepted Answer

The break-even point is calculated by dividing the cost of points by the monthly payment savings. For example, if points cost $4,000 and save $200 per month, the break-even point is 20 months. If you plan to stay in the home longer than 20 months, paying points saves money.

Question 4

What is the typical cost of mortgage points?

Accepted Answer

Mortgage points typically cost 1% of the loan amount per point. For a $400,000 loan, one point costs $4,000. Most lenders offer 0.25% interest rate reduction per point, though this can vary. Some lenders may offer different point structures or discounts.

Question 5

Are mortgage points tax deductible?

Accepted Answer

Yes, mortgage points are generally tax deductible in the year they are paid, but only for the original mortgage on your primary residence. Points paid on refinancing must be deducted over the life of the loan. Consult a tax professional for specific advice about your situation.

Question 6

What is cash back at closing?

Accepted Answer

Cash back at closing is money the lender gives you at closing, typically as a percentage of the loan amount or a fixed amount. This can help cover closing costs, moving expenses, or provide immediate cash. However, cash back usually comes with a higher interest rate than paying points.

Question 7

How do I compare points vs cash back?

Accepted Answer

Compare the total cost of each option over your expected time in the home. Calculate the break-even point for points and compare it to the immediate benefit of cash back. Consider your cash flow needs, tax situation, and how long you plan to keep the mortgage.

Question 8

Can I negotiate mortgage points?

Accepted Answer

Yes, mortgage points are often negotiable. You can negotiate the cost of points, the interest rate reduction they provide, or both. Some lenders may offer better point structures or discounts based on your credit score, loan amount, or relationship with the lender.

Question 9

What factors affect the points vs cash decision?

Accepted Answer

Key factors include: how long you plan to stay in the home, your cash flow situation, tax benefits, interest rate environment, your credit score, loan amount, and personal financial goals. Consider both immediate needs and long-term savings when making this decision.

Question 10

Are there alternatives to points and cash back?

Accepted Answer

Yes, alternatives include: lender credits (reduce closing costs), rate locks (protect against rate increases), different loan programs, or negotiating other terms. Some lenders offer hybrid options or may be willing to customize terms based on your specific situation and needs.

Category	Item	Amount	Description
Loan Details	Loan Amount	$400,000	Total loan amount
Loan Details	Interest Rate	6.5%	Base interest rate
Loan Details	Loan Term	30	Loan term in years
Points Analysis	Points Cost	$4,000	Cost of buying points
Points Analysis	Points Discount	0.25	Interest rate discount from points
Points Analysis	Rate With Points	6.25%	Interest rate after points discount
Payment Comparison	Monthly Payment (With Points)	$2,463	Monthly payment with points
Payment Comparison	Monthly Payment (Without Points)	$2,528	Monthly payment without points
Payment Comparison	Monthly Savings	65.40329226628319	Monthly savings from points
Interest Analysis	Total Interest (With Points)	$486,633	Total interest paid with points
Interest Analysis	Total Interest (Without Points)	$510,178	Total interest paid without points
Interest Analysis	Total Interest Savings	$23,545	Total interest saved with points
Break-Even Analysis	Break-Even Months	61.159000738286785	Months to break even on points
Break-Even Analysis	Break-Even Years	5.096583394857232	Years to break even on points
ROI Analysis	Net Benefit	$19,545	Net benefit from paying points
ROI Analysis	ROI Percentage	488.6296303965471%	Return on investment for points

Points vs Cash Calculator - Free Mortgage Points Calculator

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Break-Even Analysis

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Recommendation: Maybe Points

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