I'm looking to buy a home in the next 3 or 4 months. The bank I'm working with has 10 different mortgage rates, currently ranging from 3.5% to 4.625%, with points respectively ranging from 2.875 to -1.875 (see link).
I've created a spreadsheet that will add the up front costs associated with the points and the total payments over the life of the 30 year mortgage. This gives me a total cost of the mortgage, making it fairly obvious I'm better off paying points now and having lower monthly payments.
However, I started thinking that on one end I'm paying $7k in points for the lower interest rate and lower monthly payment, where on the other end I receive $4.5k from negative points, paying $160 more per month (assuming $250k mortgage). This got me wondering whether I'm better off taking the negative points lump sum difference and investing that over the 30 years, or paying the points and investing the additional $160 per month.
Assuming I would get the same rate of return over the 30 years (say 5 or 6% invested in a stock index), how would I incorporate this into my spreadsheet? I initially used FV = P(1+r)^t for the lump sum and Excel's FV function for the $160 monthly. Is that correct though? Or should I take the lump sum at face value and calculate present value of the $160 paid monthly.
I really think modelling this correctly will save me thousands with not much work. However, I'm not sure I'm modelling this correctly. Any thoughts?