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When applying for a mortgage, you will most likely be presented with the option to pay points to lower your interest rate. In order to determine if this investment is worthwhile for you, you will need to know the amount of your loan, the interest rate before the purchase of points, and the interest rate after the purchase of points. You will also need to know the length of the loan and your savings rate. If you are taking out a $250,000.00 loan with an interest rate of 5.875%, you might be able to buy down the interest rate to 4.875% with points. If you are getting a 30 year loan and paying for your points, your monthly payment (principal and interest only) will change from $1,478.84 to $1,323.02. This will give you a savings of $155.82. But, if you put your money in the fund with an average savings rate of 5.000% rather than purchasing points to cut an interest rate of your mortgage loan, you might get $10.42 per month from your investment. When you figure in your investment savings, your true savings will be $145.41 per month.
After considering the cost of paying for the points, you will break even after 1 years and 6 months.
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