Should I pay Points or No Points?
Many lenders offer loans with and without an origination point. Before deciding whether or note to pay this point, you must consider two things:
How long do you plan to own the property?
What is my recapture period?
A recapture period is the number of months it takes to pay yourself back for your initial origination investment.
A recapture period is the number of months it takes to pay yourself back for your initial origination investment.
Example: $500,000 purchase price 30 year fixed
(Note 1 Point = Loan fee of 1% x Loan Amount)
– 1 point origination $500K at 4% has a principal and interest payment of $2,387.08/mo
– 0 points orignation $500 at 4.5% has a principal and interest payment of $2,533.43/mo
The difference in payments is $146.35/mo
Take your $5K origination fee and divide by the saves of $146.35/mo and you will have paid yourself back in 34.16 months.
Now ask yourself. Will how long will I be in this home?
Will I be in this new home long enough to recoup the $5K in origination costs I incurred by paying 1 point?
Will I be in this new home long enough to recoup the $5K in origination costs I incurred by paying 1 point?
*If the answer is yes, than consider your options for paying an origination fee.
*If the answer is no than consider taking the higher rate with the lower fee.
Using the above example: if you think you will be in the home less than 34.16 months, you should not pay the origination fee as you will not recoup the initial $5K cost via monthly savings.
When searching www.doctorloanprograms.com make sure to ask your physician loan specialist about the pros and cons of paying points vs no points. The should be able to guide and advise based on your personal scenario and situation.
Doctorloanprograms.com contributor