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Cash back mortgage w/ higher interest rate?

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  • Cash back mortgage w/ higher interest rate?

    This feels crazy to me, but the math seems to be telling me to use "negative points" on my mortgage and go for a higher interest rate.  I'm using this calculator to figure out when the amount of points paid at closing will pay off due to the reduction in interest rate.  Interest rates are pretty low now, and the difference between very small numbers is.....very small, even smaller after the mortgage interest tax deduction clips them down another 39%.  The calculator generally says that it will take 10 years for the points to be paid back in reduced interest payments.  But, I doubt we'll stay in this house for more than 10 years, maybe less than 7 (yes, I've done the math on renting, it doesn't work in this town, bummer).  So, suddenly I'm considering getting cash back from my lender and paying a higher interest rate, because I can do more with that cash in my retirement fund or fixing up the house than I can save from tiny changes in the mortgage interest rate.
    Does this make sense?  Would anyone else do this?
    This is for a primary residence, second time we're buying a house, already sold the first at a profit.  We have plenty of cash on hand for down payment etc, we do not *need* more cash at closing or anything.  We have no other debt, at all.  Saving 60% of net income already.

  • #2
    I could have paid points and gotten 2.875% or not paid points and gotten 3%.  I took 3% because the eighth of a percent wasn't worth it.  What are your rate options?


    • #3
      I also declined using any points because they are almost always way too expensive and dont do anything for you. I never heard anyone say negative points before though.


      • #4
        We did "negative" points on one mortgage... it essentially freed up cash to be used for whatever (closing, remodel, etc). In our scenario it was advantageous over ~8 years,  beyond that it (the increased interest rate %) added up, and if you calculated over 30 years, it seemed crazy. We knew we'd have such a different situation at year 8, we should take the advantage then, and deal with year 30... well, in 30.

        Double check the calculations, but math doesn't often lie!