which mort. rate is best. bank of amer. 7.125 no pts. or 6.75 w/1.5pts . on a 300,000 Ln,w/ 20% down. 30 yr?

Answer 1

When you buy points, you reduce your annual interest rate and payments by paying a fixed amount upfront.

If you pay for 1.5 points upfront, you are spending $4,500 upfront to save about $60 per month.

Compare:
$1616.92 / month @ 7.125% fixed for 30Y
$1556.64 / month @ 6.75% fixed for 30Y

If you're saving yourself $60 / month (or simply, $360 / year) that is a simple rate of 8% per year. Or, if you can invest that $4500 for more than 8% per year, you should not pay the points. This is not a complex analysis, just rounding it for simplicity.

The other factor to keep an eye on is closing costs - application and processing fees, mortgage insurance, title insurance, bank attorney, title search, etc. Banks vary pretty significantly in closing costs, not just points.

Answer 2

If both loans are the same amount and the same term, you can ignore those factors for comparison. If you have the same out of pocket, the lower payment is better. Any points you pay ARE extra interest.
According to the calculator linked below the 6.75% loan with 1.5pts will reduce you payments by $45.05/month at the cost of $4,500 upfront.

Answer 3

Points are a tax deduction at the end of the year, but they cost a pretty penny up front...so I guess it would depend on if you could afford to pay for them or not. Most people think they are bad because it means more upfront closing costs, but if it costs you $4500 up front and you can afford that but it saves you another $10k over the life of the loan then it is worth it.

If you are not planning on keeping the house for more than 5 years points are a waste of money.

Answer 4

figure out the break even point of the two loans...it seems to be at about 5 years. so if this is your dream house go for the point loan, otherwis, if you will leave in the nextfive years go for the 7.125

for your peace of mind google mortgage calculators and look for one that compare two diferent loans