If you plan to refinance within 3 years, buying points typically does not make financial sense because you will not reach the break-even point before refinancing.
In that case, lender credits may be a better alternative. At a 5-year timeline, it is borderline. You need to carefully calculate whether the monthly savings over 5 years exceed the upfront point cost. Patrick Kevin Fagan helps San Antonio homeowners evaluate the refinance timeline.
3-Year Refinance Plan
Most point break-even periods are 3 to 4 years. If you plan to refinance in 3 years, you will not recoup the upfront cost. For example, 1 point costing $3,000 that saves $75 per month breaks even at 40 months. Refinancing at 36 months means you lose money. Patrick Kevin Fagan advises clients in San Antonio to avoid points if refinancing is likely within 3 years.
5-Year Refinance Plan
At 5 years, the math becomes borderline. If the break-even is 40 months and you keep the loan for 60 months, you save money for 20 months. The total savings might be $1,500 on a $3,000 point cost, making it a marginal win. Patrick Kevin Fagan recommends running the numbers carefully for clients in this situation.
Lender Credits Alternative
Instead of buying points, consider taking lender credits. Lender credits work in reverse: you accept a higher rate in exchange for the lender covering your closing costs. This makes sense when you plan to refinance soon because you do not pay upfront and can refi without losing sunk costs. Patrick Kevin Fagan helps San Antonio buyers compare points vs credits for their specific timeline.
