Discount Points (for a Mortgage)

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This video explains what discount points are for a mortgage. It discusses how discount points are essentially prepaid interest that gets the lender to reduce the interest rate. A comprehensive example is provided to demonstrate how discount points are calculated, and a formula is presented to show how the break-even point can be computed in determining how long the homeowner would need to own the home before the cost paid in discount points would be recovered.
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Опубликовано:

19 мар 2015

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Комментарии : 64

@anacelisbercruz1246 Год назад

this is what i needed to see written on a board...thank you.

@Edspira Год назад

No problem!

@HenrikKarapetyan 3 года назад

Super clear! Why did I have to watch 5 videos to finally get to this??! Wasted half hour and here’s a guy explaining it simple, with numbers and without asking me to subscribe (I did) every 10 seconds. I wish the 5 other videos showed 10% of the sense and efficiency of this video

@johnathonjones1597 9 лет назад

Thank you for breaking that down to a science. Pure genius.

@piscestraits-rule3738 7 лет назад

Everytime I think I've found the best way to broke down the math aspect of this formula...it just got better than the one before! :))

@WikiTicky 6 лет назад

But... $53 in 5 years won't be worth the same as $53 today.

@chezzer85 5 лет назад

You'd need to do a time value money calculation by applying a discount rate for inflation. In reality it would be longer than 61 months.

@analoja08 6 лет назад

thank you so much for this video ,I've seen many videos and I always ended up more confused but you save me ! Thank you again .

@Edspira 6 лет назад

You are very welcome!

@green08green08green 4 года назад

Wow, thanks for explaining this. It's perfect!

@dongaboo280 6 лет назад

Crystal clear my friend, thanks a lot...

@babieboi101 7 лет назад

Excellent explanation, thank you!

@joeylac84 7 лет назад

Your videos are a great help for me right now. Trying this exam the second time around. Do you have a video for ARMs loan?

@yannalanders7270 4 года назад

The best explanation! Thank you!

@kevinleon7772 4 года назад

Thank you very much., Super clear and helpful for my test.

@julietgarcia2590 Год назад

this was the best breakdown. thank you so much!

@jhonny_wk 5 лет назад

Great video, thank you

@MsLat1fah 4 года назад

Great video. Thank you!

@deanmohamed7575 5 лет назад

very well explained

@ricco2024 4 года назад

HOW did you calculate to get the monthly payment amount !?

@phoebejanelagas202 3 года назад

M= P[r(1+r)^n/((1+r)^n)-1)] M= Monthly payment P= Principal loan amount R= monthly interest rate (u need to divide the interest rate by 12/months per year) N= number of payments over the loan’s lifetime (also multiple by 12)

@leahblackburn1933 3 года назад

You could get a Financial calculator like the HP 10Bii to just skip the algebra. It's pretty magical.

@rudyjenx7307 4 года назад

Love this

@Corndog199 3 года назад

This helped soooo much, my book makes it so confusing. Thanks so much!!!!

@yadshankar6439 3 года назад

Better understood. Thank you

@johncardelli3503 6 лет назад

Thank you so much!

@Edspira 6 лет назад

Glad to help!

@nasermir8510 2 года назад

Thank you for making it simple.

@Edspira 2 года назад

Glad it was helpful!

@AnilSingh-fb2yn 4 года назад

What about how much money you could have made by putting the $3200 in the market making 8-10% back.

@RafValentin 2 года назад

Great explanation

@zaddvang 2 года назад

Thank you for the math. It does make sense

@Guru0020 3 года назад

Excellent explanation sir thanks

@Edspira 3 года назад

So nice of you

@karissa3099 3 года назад

This was so easy to follow the way that you explained it. Thank you so much for this.

@shuoma5303 5 лет назад

I think it's a lot more complicated than just dividing the point diff with the payment diff. You have to consider that due to the interest difference. The principle and interest paid after certain amount of time would be different. It could easily be thousands of dollars apart in either section. And also, mortgage interest is tax deductible. So if it is your primary residence, income level is another factor in this game.

@nabilnoble1390 2 года назад

Wow thanks 🙏

@Edspira 2 года назад

You’re welcome 😊

@the-bu3lb 4 года назад

how did you get the 53 or the monthly payments

@brendarodriguez4653 2 года назад

how do you get the monthly payment

@landwalker88 2 года назад

I'm I the only one seeing a totally screwed up image? It looks like a tv that's getting really bad reception.

@Gomangoman11 3 года назад

Your not accounting for opportunity cost. The hallmark of a bad investment Is when we start talking about "breakevens" instead of yields. When your being offered points that give you a less than desirable yield (compared to a investment vehicle within your risk tolerance) then you should take negative points. When you're given a desirable yield you should load up on them. It's simple, every dollar you give to gain capital (in this case real estate) needs to offer a preferable yield.

@beatsgalura 6 лет назад

would the points you are paying upfront come out of your equity if you are refinancing? Or you have to come out of pocket? and what is the maximum points you could pay to drop your interest rate?

@Edspira 6 лет назад

The points do not come out of the equity. It is basically prepaying your interest on the loan. Regarding the maximum points, it all depends on the lender and what deal they are willing to give. Good question!

@renishdel 8 лет назад

I wonder if I pay 2% towards down payment instead of points..how long would it take to break even.

@matthewt6070 6 лет назад

I would like to know this also

@JoshuaWeidnerMagician 6 лет назад

You need to account for the time value of money. For example, is the 30 year annuity of $53 per month worth the upfront cost of $3200 given the discount rate? Using 3% (for inflation but throw in whatever number you want to do the math with) and keeping the loan for the full term, the net present value would be about $9371.04. Feel free to double check my math though.

@S590573 4 года назад

The NPV of these cash flows (the net difference ) is something like -1000 so it almost never makes sense to buy points

@dalmatiabnb 2 года назад

If I have a $40,000 loan and I'm giving 4 points to get to 2.5% on a 30 year fixed... would it be beneficial at all to pay it off early?

@melissamejia3497 7 лет назад

how did you figure out the monthly mortgage payments ?

@Edspira 7 лет назад

I calculated the present value of an ordinary annuity. See the following video for a more detailed explanation: ru-vid.com/video/%D0%B2%D0%B8%D0%B4%D0%B5%D0%BE-lsc06_SnJts.html

@JF098 7 лет назад

N = 30 * 12 months I = 7/12 months PV = 160,000 FV = 0 *PMT = 1064

@LoicaNyamsi Год назад

how are we calculating the payments?

@mariafitts 3 года назад

If I received a 2.75 % discount rate to start with , why is my lender adding 4,680.78 to reduce my rate to 2.625% ??? Please help, is that correct

@CC-mp5jc 3 года назад

PLEASE HELP! When I do the math, it makes perfect sense to pay points, almost too good to be true, where did I go wrong? At 7%, the total interest paid is 223k and at 6.5%, its 204k, Isn't it worth 3k upfront?

@the-bu3lb 4 года назад

explain ow your geting these figures