Refinance Home Mortgage Rates - Should You Take the Discount Point Or No?

May 7, 2010 - PRLog -- With refinance home mortgage rates super low right now, you are probably thinking you should take advantage of it. You already researched everything you could research on your own. So you know that your home's value is enough to cover the whole loan in a refinancing transaction. Your credit score is over 700, which is excellent. And your income to debt ratio is very good. You make more than enough for even several house payments. Ok, so maybe that's not the case, but that does not mean you will not quality. Working with a good loan officer, you will be able to find a solution that will let you lock in an excellent interest rate. So, as you are going through the paperwork, the topic of discount points comes up. Should you take the discount point?

The answer all depends on what you are planning on doing in the future. Are you planning on selling within 5 years? Or are you planning to stay for the long term?

If you are going to sell, you have to consider the real estate market. Will you be able to realistically sell and make enough money to have made it worthwhile? Right now, it is unlikely that a house will appreciate enough to make it worthwhile. You have to consider that you will be paying the realtors' commissions which will amount to 6%. Then you may have to pay taxes and insurance so that you will have a buyer. This all adds up and if your house has not appreciated by at least 10%, then you would be losing money and thousands at that. But if you are confident that you will be able to sell, then it would be wiser to not take a discount point as it will only add to your cost. If anything, you might want to take a slightly higher rate just so you get the rebate upfront. If do some calculations, you can figure if the upfront savings will be more than what you would pay on the interest and when the break-even point is. This will let you know the deadline by which you would need to sell before you starting losing money.

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