Let’s be honest, Most of us didn’t know this. We probably know, however, that during the 2009 MTV Video Music Awards this week, Kanye West stormed on stage as Taylor Swift was receiving the Best Female Video award.
In reality, the news about the space shuttle is more relevant and should be more important to our future. But as normal people, we block out a lot of the information that can benefit us and latch on to what we find, or our friends find, interesting at the moment.
If you’re like me, you get tired and numb of all the numbers being thrown around. Anything political or financial puts a bad taste in your mouth and whether you really care about the MTV awards or not, it is more interesting although not more important at the moment.
Here's another tip that you'll probably gloss over unless it's relavant to you at this very moment.
I had a client ask me today if it made sense to buy their rate down since rates were already so low. It's a great question and it honestly depends on each individual situation.
There is a formula we use to determine the "break even point" of the discount point buy down. Here's the formula:
Total cost of the buy down / (Payment before the buydown - payment after buydown) = Number of months before you break even on the cost.
For example...let's say you were getting a $200,000 loan at 5.0% and your payment is $1,075. You want to know if buying down your rate to 4.75% is a good deal. The cost to buy the rate down is 0.75 points or $1,500. Your payment at 4.75% will be $1,045 a month.
Using our formula, if we take $1,500 / ($1,075 - $1,045) = 50 months. This means that it will take you exactly 50 months (4 year and 2 months) before you even break even on the buy down.
So, does the buy down make sense? Well, if you're only going to be in the house for two or three years then NO! But if you're planning on being a "lifer" then it would make a big difference in your total out of pocket.
Have a similar question? Shoot me a line or give me a ring. I'd love to speak with you!
