Is it worth it? While my wife and I were down in Los Angeles, an African American man approached us with a bag load of brand name cologne. He had my favorite cologne Tommy Hilfier. He asked if I was interested in buying some cologne. I asked how much. He told me it would only cost me 10 bucks each. I looked at the cologne and test it. Yep, it definitely smells like my brand. I asked him if he can sell it 2 for 10. The guy gave me long story about the trouble he has gone through just to get these colognes. He can’t sell that cheap because he is not making any money on it. I told him if he can’t then I can’t buy it. As I turn to walk away, the guy tapped me on the shoulder and said, “What if I sell 1 for 5? Will you buy it?” I said sure, I’ll take two. The guy gave me two Tommy Hilfier, I gave him 10 bucks and then he walked away happily. My wife turned to me and asked why I bend down to his demand. I told her to do the math and think about. Going to a lender and wondering if you should put more money down or not is probably one of the toughest choices you would have to make. It’s like the lender playing your minds with numbers just like my story. In some occasion, the lender will ask the borrower to put an extra $5,000.00 or more down to get a lower interest rate. This is called buying down points. Huh… Buying what?? Buying a point in lender’s language is, it would cost you 1% of the purchase price to buy down the rates. In some cases, the borrowers are told they would save a total of $20.00 to $40.00 per month on their mortgage. Some borrowers would be excited at the mention of saving 20 to 40 bucks per month. But wait a minute, how much are you paying for that one point? Okay, let’s say you are buying a $500,000.00 home and you are going with a FHA loan. This mean for that one point you are paying $5,000.00 for that one point for a saving of 20 to 40 bucks per month. Let’s do the math here. In one year you would save 240 to 480 buck per year. This mean it will take you 10 to 20 years to break even. Hmm….. Is that the best decision? The really big question you should be asking yourself is, how long do you intend to live in the house or keep it? When it comes to human, we are all nomads. We move from one place to another every 5 to 10 years. We can’t predict what will happen in the future. Now if we move out of the house in 5 years, this mean we didn’t really save anything, because at minimum we would need to stay in the house for at least 10 years to break even. The other variable that we should never dismiss is the housing market. Will price stay the same, appreciate or depreciate? In the short term, you would save 20 to 40 buck per month. But long term wise, the risk of losing out is much greater. The truth, if you have plenty of liquid assets (money), it is always better to keep it liquid than turn it to hard assets. Once you turn it to hard assets, it does not guarantee you will get what you paid for in return. If you can get away with putting down the least amount of money, it is worth the savings. Now if you are saving more than 100 bucks per month with an extra 1 point, then go for it.
Posted on: Wed, 21 Aug 2013 04:51:06 +0000
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