conversation: User (EOD_Wolfey): "My wife and I are purchasing our first home using a 30 year, fixed, VA loan with no down payment and no PMI (Primary Mortgage Insurance). We are comparing lenders at the moment and our bank is offering us 3.5% with 0 points, 3.375% with .25 points, and 3.25% with .75 points. Our loan will be around 115k. They also offer an origination fee of 0.5% instead of the traditional 1.0%. Could someone please explain how the points thing exactly works and whether or not it would be worth it? Approximately how much money could be saved over the course of the loan and would it make much of a difference in our monthly payment?\n\nOur second option has agreed to match the 3.5% interest rate and the 0.5% origination fee as the first option but they have no points system to go lower. Their other advantages are that they are local and are currently closing on homes within 21 days where as our first option is not local (but works very well and has exceptional customer service via telephone/email) and are closing on homes in 35 days. "
  Self: "http://www.bankrate.com/finance/mortgages/mortgage-points.aspx"
  User (EOD_Wolfey): "That makes perfect sense. By my calculations, .75 points would cost us $862.5 up front. That is completely doable for us. Do you know how to calculate what the difference in our mortgage would be monthly and after 30 years? I don't know how to calculate that myself.  "
  Self: "http://www.bankrate.com/calculators/mortgages/amortization-calculator.aspx"
  User (EOD_Wolfey): "Alright, again, if my math is correct here:\nIt would lower our monthly payments by $16 and would take us almost 4.5 years before we broke even with our $862.5 and then started to save money. Over the course of the entire loan, if not paid off early, would save us almost $6000."
  Self: "You can come out ever more ahead by getting a shorter 15 year mortgage. The longer you are in debt, the more it costs."
  User (EOD_Wolfey): "I understand that but we're not comfortable with a 15 year mortgage. While we may be able to start off with a monthly note we can easily afford, that note will most likely increase. Not the mortgage but the insurance and property taxes go up as the property value goes up. I currently live in one of the fastest growing counties in the US and property here is going sky high. I'm much more comfortable paying extra whenever I can and defaulting to the minimum should I have to instead of risking it all on a 15 year mortgage."
  Self: "You could get a 30, but pay like it is a 15."
  User (EOD_Wolfey): "That's the plan"
  kc0039 (kc0039): "If you're paying it like it's a 15 year mortgage, I suggest not putting anything in points and use that money to pay it down quicker. That would be more beneficial"
  LivingReaper (LivingReaper): "Doesn't that depends on whether he runs the numbers can pay it off in ~8 years or so? I'm guessing on the numbers I don't know exact interest rates on 15 vs 30s, just going by his 4.5/yr breakeven point, but even if he estimates a 10 year payoff point it would still save him money, especially if life happens and he has to get a new car or medical bills or anything like that."
  