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Ask Money

Points?

Chris Farrell May 16, 2008

Okay, I’ve learned the hard way that I can’t stay in a hotel without a good Internet connection just to save a few bucks, It isn’t worth the time and aggravation. Anyway, since I couldn’t post yesterday, here’s an extra one for today.

Question: How do I see whether it’s a better deal for us to refinance, say, at 5.8% with closing costs of, say $5,000 or to go with an offer with no closing costs but at 6.5%? It has to do with time to recoup the closing cost expense and time we plan to be in the home…? Are there amortization schedules (is that what you call them?) that can be run to show me the comparisons? Thanks much for any help! Johan, Ocoee, FL

Answer: Yes, there are a number of calculators on the web. For instance, you can go to www.dinkytown.net. In its mortgage calculation section there is a “mortgage points calculator.” This way you can weigh the trade-offs. In general, the big advantage of a no-points mortgage is that it’s cheaper if you end up refinancing at a lower rate within a reasonable period of time (or end up moving within a few years). The advantage of paying a point or two is that you buy down the interest rate, which can pay off over the long run. The mortgage calculators will give you concrete numbers to work with.

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