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4.375 % with 2.7 points, would you take it ? We are.

RMC Vanguard made us the offer at 5:30 PM 1/21/2010. We have an average credit score of 801 and are putting down 20 %. Our loan will be $ 197,750. We live in Maryland and are buying a home in Havre De Grace, MD. Thanks for the input. To be objective, USAA was offering 4.375 %, 3 points with escrow.  
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January 21 2010 - Havre de Grace
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Answers (18)

I hope the offer came through as advertised.  With the 2.7% discount it seems to be in line with most offers.  Just north of HDG proper you can qualify for UDSA loans.  102% financing at around 4.875%.  And no mortgage insurance.

Let me know if this helps.
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March 04 2010

Consider a 15 year with the same cost @3.75% you simply can't beat the savings.

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February 05 2010
I also own an accounting firm and for high income buyers this may prove to be a wise move, especially when we get into the high tax brackets of 35-70% the more deductions the lower the % of tax paid because points and interest on a purchase are tax deductible in the year they are paid. This could mean depending on income and how other deductions apply reducing the taxable income 8-26 % or more.

You can deduct the points in full in the year they are paid, if all the following requirements are met:

  1. Your loan is secured by your main home (your main home is the one you live in most of the time).
  2. Paying points is an established business practice in your area.
  3. The points paid were not more than the amount generally charged in that area.
  4. You use the cash method of accounting. This means you report income in the year you receive it and deduct expenses in the year you pay them.
  5. The points were not paid for items that usually are separately stated on the settlement sheet such as appraisal fees, inspection fees, title fees, attorney fees, or property taxes.
  6. The funds you provided at or before closing, plus any points the seller paid, were at least as much as the points charged. You cannot have borrowed the funds from your lender or mortgage broker in order to pay the points.
  7. You use your loan to buy or build your main home.
  8. The points were computed as a percentage of the principal amount of the mortgage, and
  9. The amount is clearly shown as points on your settlement statement.

Courtesy CS Thompson Reuters

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January 30 2010
One other consideration that comes into play with many of my clients when considering points is their tax rate.  

Points on a purchase are tax deductible in the year they are paid.  Many of my clients who purchase in the same year in which they realize a "one time" income windfall (due to a stock option liquidation event for example) buydown their rate by 2-3 points.  They do so because their income windfall places them into a significantly higher tax bracket in this year then they expect to be in the future.  

 By paying points now, these clients are able to write-off, for example, 50% of their points now rather than perhaps only being able to write off 38% of their mortgage interest payment (due to being in a lower tax bracket) over the life of the loan.  They also partially insulate themselves from any future legislation that may place caps on the amount of interest that they can writeoff.  

Disclaimer:  This is not tax advise.  

 



 As such their effective after tax cost of these points allows them to breakeven significantly sooner than they would otherwise.
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January 28 2010
I have never recommended any of my clients to pay more than 1 point. If you decide to pay 2.7 points, you are probably looking at around 15 years to break even. In 15 years, you may have refinanced, or sold the home, in which case, you will lose the upfront points you have paid...
I would stick with 4.875% and no points, and low closing costs...
Good Luck.
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January 27 2010
I would check with Provident Funding.  The last time I looked the 4.50% 30 year fixed rate was arounf 1.50 Points.  Consider 4.625% at close to .75 points.  Most of my clients do not pay to buy a rate down below the market rate unless they are positive they will be in the home for 6+ years.  USAA does have a good reputation.  But, check with Provident Funding too.
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January 24 2010
If you are, why ask?
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January 24 2010
Take the 4.875% no point loan.  Put the buy down of $5000 and the $6500 into a taxfree bond fund.  Apply the interest earned to principal and pay your mortgage off much sooner, have a better tax deduction and $11,500 saved!
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January 22 2010

I'm with Sherrie,
If it "feels" right, do it. Your LO may give you advice, if it was me, I'd tell you not the right thing to do. But, its your decision. "Please, call me back in 8 years to let me know this did end well for you."

Most folks will not break-even. Something, usually happens. The best plans of mice and men, usually change. .... Best wishes, Rudi
'

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January 22 2010
These are all vaild points. We figure it is not our money, it is the tax payer handout of $ 6,500. The buy down 1/2 percent point will end up savings up over $ 27,000 over the life of the loan. We don't move very often and have been in our last home over 17 years. So we get a tax write off in 2010 for the points that actually adds up to over $ 32,000. If we put the $6,500 in a CD for 20 years at 2% ends up around $ 7892. or we could just blow it on the new house and get no return.
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January 22 2010

I agree with Paul.  Why pay so many points.  Already 7.5 years to break even compared to 4.875 no points. 

Then factor in tax deduction benefit of mortgage interest paid at the 4.875. 

Then factor in interest you can earn over the 7.5 years on the 5,339 that you don't spend.

Your true break even will exceed 10 years with those factors.  The only way it would be worth it is if you had a closing cost credit from seller/builder where you spend it or lose it.  If it is your own money, consider the higher rates/lower cost.   Also, consider a 15 year if the monthly is managable and you want a better rate.

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January 22 2010
Profile picture for sunnyview
Personally, I would not take that deal with all those points. You might want to run the numbers through a points calculator here to see if you will really save money in a reasonable time frame paying that much up front. 
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January 22 2010
Seems like a lot of points. I would have them tell you also what your APR is going to be. I've recently settled homes with this interest rate for less points and the same rate. I would get all your numbers on paper and have another bank look at them to compare. Then you will know what is best.
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January 22 2010
2.7 points is about right for 4.375%. would I take it? no. I'd go for a higher rate with less in fees.
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January 22 2010
Yes 30 year fixed loan
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January 22 2010
30 year fixed?
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January 22 2010

hump,
You speak of a 30 year fixed, si amigo?  
 Just thinking...
$197750 Loan
@4.375% - $987.34/month
@4.875% (no points, some other closing costs) - $1046.51/month
= $59.17 difference = 90 months to straight up get that $5339 back (that's 7 1/2 Earth yrs)
If you are 99.98% sure that you will never refinance or move any time soon (see above) and you have the cash to spare ? then sure why not pay 2.7 points
Like Sherri says, find peace in the path you choose.
 

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January 21 2010
At the end of the day, it really doesn't matter if others would take it.  If you feel good about it (and it sounds like you do), go for it!  Best wishes!
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January 21 2010
 
Related Questions
4.375 % with 2.7 points, would you take it ? We are.
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March 04 2010 | 18 answers
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