Borrowers constantly ask if they should pay points or origination fees to buy down a loan. Our constant refrain is no, and here are the reasons why:
1. Borrowers get too little bang for their buck. In the current market, paying a point will often only improve the rate by as little as 1/8 percent, and sometimes 1/4 percent. For a $600,000 loan, lowering the rate 1/4 percent from 4% to 3.75% lowers the payment by $85 per month. This means it will take over 70 months to make up $6,000 in points. This is too long of a pay-back in our opinion.
2. Borrowers refinance much more often than they expect. Either falling rates or life-events (move-ups, down-sizing, cash-out needs, divorces, etc.) often cause borrowers to refinance long before the points are “recovered” via lower payments.
Note that in 2008 our opinion was different. A point could buy the rate down as much as 1/2 percent for a while, and we often recommended points then.
Founder/Broker | JVM Lending
(855) 855-4491 | DRE# 01524255, NMLS# 335646