Am I thinking about points wrong?
I'm trying to figure out if points are worth it. The usual formulas just compare the difference in the total fixed monthly payments. To me this does not make sense because I'm keeping the equity from the portion of the payments that go to the principal.
Shouldn't I just be comparing the relative cost of interest payments (exclusively) for a mortgage with vs without points, and not include payments toward the principal?
e.g. If it costs me $5,500 to buy .5% off of a 6.75% nominal rate loan (borrowing $550k), then wouldn't the breakeven point be the month where I've paid $5,500 less in interest payments for the loan-with-points versus the loan-without-points?
If the calculations come out like this on a 30 year mortgage, why wouldn't I buy as many points as I could if I was sure I wouldn't sell or refinance before the 24 month mark, even if it means putting less money down to do so?
| Points | Points cost | Effective rate | Months to breakeven | CUMIPMT at effective rate w/ points | CUMIPMT at 6.75% | Difference |
|---|---|---|---|---|---|---|
| 1 | $5,500 | 6.2500% | 24 | $(67,970.37) | $(73,483.59) | $(5,513.22) |
| 1.5 | $8,250 | 6.0000% | 24 | $(65,215.96) | $(73,483.59) | $(8,267.62) |
| 2 | $11,000 | 5.7500% | 24 | $(62,463.21) | $(73,483.59) | $(11,020.38) |
| 2.5 | $13,750 | 5.5000% | 24 | $(59,712.24) | $(73,483.59) | $(13,771.35) |
| 3 | $16,500 | 5.2500% | 24 | $(56,963.21) | $(73,483.59) | $(16,520.38) |
| 3.5 | $19,250 | 5.0000% | 24 | $(54,216.28) | $(73,483.59) | $(19,267.31) |
| 4 | $22,000 | 4.7500% | 24 | $(51,471.61) | $(73,483.59) | $(22,011.98) |
Or am I just messing up the math here? >!=XMATCH(TRUE, ABS(CUMIPMT($B$2/12, $B$3*12, $B$1, 1, SEQUENCE($B$3*12), 0) - CUMIPMT(C9/12, $B$3*12, $B$1, 1, SEQUENCE($B$3*12), 0)) >= B9, 0)!<
I'm struggling to understand why a bank would let me do this. I guess what they could make off of the immediate $22k is more than what they lose on average across their entire loan portfolio from letting people buy points, and I'm basically just lucky to have the money to do it when most don't?
Posted Jul 9, 2025, 4:15 AM UTC · edited