Locked in Rate, Should I buy down?

[MrChairman]

Locked in a rate of 4.125% for VA 30 yr fixed yesterday with Myers Park Mortgage which is a subsidiary of Certus Bank. A small national bank out of North Carolina. I have the option to buy down the rate for roughly $2k down to 3.8%. I was asked to pay for the apprisal upfront, is this normal? Condo won't be finisihed for another week or two.

[aussiesareforever]

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@MrChairman wrote:

Locked in a rate of 4.125% for VA 30 yr fixed yesterday with Myers Park Mortgage which is a subsidiary of Certus Bank. A small national bank out of North Carolina. I have the option to buy down the rate for roughly $2k down to 3.8%. I was asked to pay for the apprisal upfront, is this normal? Condo won't be finisihed for another week or two.

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It is normal to pay for your appraisal upfront.

Buying down your rate depends on how long you are going to stay in the house for. It is generally profitable if you are going to be in the house for five years or longer.

[Semperfit]

I wouldn't buy down that difference if you can afford the current rate and you plan on staying long term. 

r/s,

[primeonetx]

Nobody can accurately answer the question without knowing two things: the amount of the loan because the $2,000 is a percentage of the loan amount and the length of time you plan to keep the mortgage (not the condo, just the mortgage).  If it's a small percentage, it's worth it; if it's a large percentage, it's not.  What's the loan amount?  And how long do you plan to keep the mortgage?

[MrChairman]

Loan amount is 243K and although i plan to live there only 5-7 yrs, I am leaning in the direction of keeping it as a rental when i move out of the area. Nice neighborhood and home prices are trending upward.

[amtrucker22]

This is my simple minded way of doing things, so forgive me if it is wrong, but this is how I did it.

I took just a basic loan calculator and used the rate at which I could lock and got the dollar amount.

Then I took the rate I could buy down to and got that dollar amount.

That is the difference it cost you per month for that amount of money with those two rates. Then I divided that dollar amount into the cost of the buy down (your case $2000) and divided that number by 12. This gave me how many years it would take to break even on my money. So in your case it would go something like this:

4.125% = $1177
3.8% = $1132
Difference is $45
$2000/$45 = 44.44
44.44/12 = 3.7 years

So with all other things being equal, roughly you would have to own the property for 3.7 years to make your $2000 back.

[Hoya08]

Always buy discount points if you intended to keep the mortgage for longer than the break-even point as Amtrucker calculated AND if you have the funds to do so.

I purchased points for 3.0% APR and my break-even point is at 60 months; I also intend to stay at my property for at least 7-10 years.

[aussiesareforever]

http://www.thetruthaboutmortgage.com/mortgage-discount-points/

This should hopefully help