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What is your monthly mortgage payment? If you buy two points for a rate of 5 percent, how much would you save monthly?

You are considering purchasing an existing single family house for $200,000 with a 20 percent down payment and a thirty-year fixed-rate mortgage at 5.5 percent.

Nov 23, 2014 by Ariana in  |  Flag
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John Essigman Level 17

Hi Ariana,

Your question is not clear… How much would you save as compared to what? Are you saying that your mortgage is being offered at 7.5% and you can buy that down to 5.5%? Or are you saying you can buy it down from 5.5 to 5%? At what cost… What are the points being calculated against? Are you also avoiding PMI?

Comment   |  Flag   |  Nov 24, 2014 from Cleveland, GA

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In the most simple terms, you are paying $3200 in points in exchange for $800 less interest per year (although this savings will drop each year as the principle balance of your mortgage drops).

I am assuming 5.50% vs. 5.00% on $160,000 ($200,000 less 20% down), no PMI insurance.

So in very rough terms, your break-even will be around 4-5 years. After that, you are saving money.

Comment   |  Flag   |  Nov 24, 2014 from Mystic, CT

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