Help me figure out which mortage rate to choose.

[TNDemo]

We have an option of 5.25 with zero points or 4.5 with $3,000 charge for points. The amount of the loan is $150,000. The life of the loan is 15 years. Which is the better way to go?

[flamingyouth]

1. That's a lot of points

Is that the best anyone can offer you? I guess if it were me, I would go with the lower rate and pay the points, but I could be wrong. :hi:

[burythehatchet]

2. the most critical piece of info is whether you're looking at an ARM

or a fixed rate.

[TNDemo]

3. Fixed rate.

[burythehatchet]

5. If you're planning to stay in house for at least 4 or 5 years then

you should definitely pay the points. Any time period less than that doesn't give you enough time to recoup the points you pay.

[GOPisEvil]

4. Over the 30 years of the mortgage, it makes sense to pay the points.

With the lower rate, your total will be $123,610 paid in interest versus $148,190 at the higher rate. The $3,000 is a bargain if you can afford it.

[TNDemo]

6. My calculations

are that the monthly difference in payment between the two amounts is $58. It would take me 51 months to make up the $3,000 in points so I would need to plan to live there longer than 51 months to make it worth it. Is this right?

[burythehatchet]

8. that's right. Its a little longer because the present value

of your savings is less and the opportunity cost of the 3000 is more.

[MercutioATC]

7. Go with the 4.5% with points (with a caveat)

Your payment on a 5.25% loan with no discount points would be $1,205.82, and your total interest would be $67,046.66.

The payment on a 4.5% loan with 2 points would be $1,147.49, and your total interest would be $56,548.18.

You would save $58.33 a month by paying 2 discount points to lower the loan's interest rate.

Based on the points (2) you stated, it would take 51.4315 months to recoup the cost of paying discount points.

If you're planning to stay at least 4 1/2 years, go with the points.