Q: We will be purchasing a home in Columbia, MOin late October.  As

Interest rates have crept up these past few weeks to over 6% on a 30-year

conventionalloan, I am concerned about paying points to buy-down our

interestrate.  When is itsmart to pay points and when is it foolish?

We expect to borrow up to $190,000 by getting an 80% first mortgage, a 15%

secondmortgage and putting down 5%.

Thanks for your advice.

 

Sheila Schill

 

A: Dear Sheila:

 

Buying down your interest rate by paying points is not necessarily bad move but I think that you should proceed cautiously.  Historically, interest rates in the 6% range are a great deal.  If you intend on being in the home for an extended period of time (10 or more years) it may be worth your while to pay the points.  However, with the way your loan is structured 80-15-5 you are most likely paying a higher rate of interest on your second mortgage.  You may be better off by taking the 0 point loan.  When your home appreciates in value you will be able to refinance your balance into one loan at a low interest rate. At that point, depending on market conditions, you may want to consider buying down your rate.  Midwest Mortgage Capitalwould be happy to run some numbers and give you a specific recommendation if you would like.  We can be reached at 314.787.LOAN.

 

Good Luck,

Jerry