Mortgage Advice - Buy Down Rate?

[treillw]

I can buy down my mortgage rate from 2.875% for the following amounts:

2.375% would cost $13,276.80 in a fee
2.50% would cost $9,513.60 in a fee
2.75% would cost $3,840

I'm debating whether or not this is worth doing. It would take a little under 7 years to break even on the payment amount difference adding up to $10k. I don't plan on moving, ever, let alone within 7 years. After that we would save us about $45k in interest over 30 years.

The other side of the coin is that I could take the said $10K and put it into investments (my 401k) and make, say 8% interest on that money, and in the long run be better off than I would be in saving the $45k interest.

What say ye?

Thanks!

 

[DenverCountryBoy]

Markets go up and down. Go for the sure thing.

 

[Billy Goat]

My advice would be to reduce interest.


But you can always just go with dogecoin, or buy yourself a nice 20 year old toyota that will increase in value faster than your home.

 

[go_deep]

How does it change the pay off of your house if you take the $10k and put it directly against your principal amount of your mortgage

 

[Cant hit em]

Instead of buying down you should drop to a 20 or 15 year loan and get those rates. Your payment might increase slightly but you will save way more slashing years on your loan.

 

[Crowmangler]

In my opinion I wouldn't pay the extra fee.

Each payment add whatever extra you can and designate it to be applied to the principal amount. They have to do that if you designate it. You will come out much better doing that over time.

If I remember correctly, adding one extra payment each year reduces a 30 year mortgage down to 18.

 

[txhunter581]

The house usually wins.... they know the odds are in their favor for them to come out ahead.

I don’t buy extended warranties either. Those house wins there too

what I did is get a 20 yr note. As stated, that drops the interest rate, and then I paid more each month than the actual payment. That is the best way to make use of that $10,000. Paid mine off in 17 years and change. THAT is the best way to save interest cost. I saved almost 13 years of interest payments.

i am not a CPA but I did stay in a Holiday Inn Express last night....

 

[canyonhunter47]

In general, it’s doesn’t make sense to buy points on your mortgage. You have to look at difference in interest paid and not just different in payment (principal + interest). If you did I suspect that the break even point is way longer down the road. You would probably be better off padding your IRA/401k or other investment or at least that’s how I see it

 

[JBB111]

The avg mortgage in the US is about 84 months, doesn't mean you move just maybe refinance or payoff. Only about 10% of all mortgage now stay on books for more than 10 years. The breakeven that you mention is correct thinking but you did not calculate future value money on the buy down expense thus pushing it, the breakout even further. Better to just pay extra towards the principle. The 1 extra payment annually generally reduces term by 7-8 years.

Do not get caught up in having to have the lowest rate, it's just a number. Anything you pay additionally each month goes directly to principle pay down thus reducing the total interest paid.

Hope this helps.

 

[ODB]

How does it change the pay off of your house if you take the $10k and put it directly against your principal amount of your mortgage

Our mortgage company has a calculator where it shows how much interest you’ll save if you pay a lump sum on your current loan. It’s substantial. You can also get your loan recast for the original term which will lower your payment, but if you keep paying the original amount you’ll pay off your house much faster. a benefit of a recast loan is that if any shit hits any fan your monthly outlay is lower allowing you to weather the storm.

Try to find a calculator like this and dump 50-75k on your loan and see what it looks like.

 

[big44a4]

Another thing to that not many think about is keeping the 30 year note at current rate and make one large additional payment towards principle to keep the cushion for emergencies.

For example instead of paying 1k extra each month. Save it then at end of the year pay 12k. Takes more discipline which is why most don’t recommend it. I’m on track to pay off mine in 15 years total. If I paid monthly the 1k extra it would only save about 30k over 15 years which isn’t worth not having that cushion for emergencies. Also I don’t factor in possible bonus or salary increases.

 

[homers]

Don't reset the length of the existing mortgage. for example if you originally had a 30 year, been paying for 5 years you have 25 years to pay it off. Don't reset back to 30 years. Depending on where you are on your payment schedule, I'd look at a 15 year (interest rates are lower vs the 30) and obviously shortens the payback period.

 

[540-Virginian]

Whats your overall financial picture? Dont answer just a question i would consider if it were me. Do i have enough in cash flow and savings for emergencies, big purchases down road, repairs for house, etc. 13k could be roof or deck for example youll need 10-20 years from now. Interest rates are so low the cost to buy down may not offer as great a trade off. But if you have ample cash and a sound retirement contribution and saving 30k down the road seems ideal go for it. If you’d be strapped for cash and have to take a loan in an emergency id keep the cash and put in a high interest savings or in bonds index fund. Everyones situation is different as are their spending behaviors. I always try to ask myself a ton of questions and play out possible scenarios that have a high probability of happening vs not happening.

My personal finance goal is no debt period; house payment is all i have but i dont want to pay off my house if it means i dont have any savings. It would take 5-10 years to get back to where my savings are today that cover me for lost job, repairs on cars house etc.

 

[Molon Labe]

Dont buy points. Just take a 15yr instead. Invest the extra money and you will always have a buffer.

 

[Daniel Boone]

I would not buy the points. Life happens and you may not be in that house for another 7 years.. I would just pay extra each month as opposed to refinancing to a 15 year mortgage and increasing your payment. If you are disciplined about it, the house will be paid off before you know it. My personal opinion though for what it is worth is to attack any other debt you may have first. Being debt free is the key to financial freedom.

 

[qwerksc]

Shop it around, I bet you could get it for half.

 

[DunnCoHunter]

You should be able to do the math on all your options and calculate out what choice makes the most sense financially. Some good online calculators. Interest is so cheap it doesn’t make a whole lot of sense to pay mortgages down faster unless you are already maxing out your 401k. You save a ton on taxes with the retirement accounts on top of a much higher rate of return. But if paying down your mortgage and owning your home quicker gives you more peace of mind then there’s nothing wrong with that either!


Sent from my iPhone using Tapatalk

 

[Rich M]

If I read this correct, you are talking about spending $4,000 to $13,000 to save 0.125% to 0.5% when you are already under 3%. Doesn't compute well for me. You may have a very high mortgage and expensive house where such a minor adjustment makes a big diff.

Without more details I can't give you my useless opinion.

 

[ben h]

Like others have said, I wouldn't buy down the rate at these historic lows. Years ago I would have said to get a 15 year because you'd save at least 1%. Now the difference is so small, I'd just get a 30 year and it gives you some payment flexibility if needed, but you could pay extra if you want. Interest is a function of rate and time, but it's more important to reduce time as long as the rates are reasonable. Also keep in mind closing costs when switching loans. I opted to refi my house with a variable HELOC which had $0 in closing costs as opposed to get a traditional mortgage which would have cost about $4k upfront. I'm at 3.5% on my HELOC and owe about $34k on the note.

Unrelated to the OP's situation, but something to consider for any mortgage holder. My banker a few years ago told me "loans are easy to get when you don't need them and difficult to get when you do need them". Put your loans together when you're in a good spot financially. In 2019 the company I worked for started having layoffs and closing offices in our division. The 1st thing I did was refi my HELOC in case I would be caught up in that. Sure enough, I was and was let go in August, but had already taken care of that in June, so it didn't really matter. This is also why I would opt for the longer period loan although you pay a slightly higher rate, it does offer payment flexibility, should you need it. I do not advocate paying minimums and using all that time, but if you need to you have that option without a refi that will cost you $4k (or more).

 

[hunt1up]

I'd just make additional payments toward the principal only. Always make sure you ensure it's going only to principal. On a few occasions I've made extra payments and the bank applied them as regular payments, so I was paying interest as well. Fortunately I keep an eye on the account and had them fix it.

Or refi to a 15 year if you can perhaps get similar lower rates.