Expert: Ray Beggs - 11/3/2006

Question
Hi Ray,

In a nutshell, i'm in escrow on a second house.  I'm doing the loan with Countywide.  It's a stated loan, and the down payment money (20%) is coming from the refinance of my current home. The seller did not pick up the closing cost, so Countrywide just bumped up my loan amount to cover all the cost, and points buy down.

They say it's costing me one point to get the loan at 6.75%, which is not what i heard the first time....and if i want 6.375 it will cost another point.  On this particular house that's $8,000 for 2 points...and that's one house. The refinance is also at the same interest rates with the same buy down points.

So now i'm wondering if i should just do the two loans at 6.75 and forget the buy down of the rate.

I plan to keep the refinanced house, as well as the new house for a very long time.

What's the best strategy?

Looking forward to hearing from you,

Wayne Yasuhara

Answer
Hi Wayne,

It's comes down to simple math. If the amount of interest that you will save on the loan will be greater then the money it costs to buy the loan down, then it's a good idea to do it. The variable that makes the difference is how long you own the home. Since you're going to keep it for a long time, then it's probably worth the buydown. The rule of thumb that I use is that the points usually pay for themselves in 4-6 years. After that, it's gravy.

Best of luck,

Ray