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You have applied for a 30y $500,000 mortgage loan. Current interest rate is 5.5% but...

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Accounting

You have applied for a 30y $500,000 mortgage loan. Current interest rate is 5.5% but the loan officer suggests that you can purchase some points to reduce your interest rate to 4.5%. Points costs are usually expressed in terms of the percentage of the loan amount. For example, a 1.5% point means paying a one-time $500,000 * 1.5% = $7500 to reduce interest rates. You know this fact that almost no-one keeps the original mortgage for 30y and either relocates or refinances. Your estimate is that you will refinance after 3 years. What is the maximum points cost (expressed as the percentage) that you are willing to pay to reduce the interest rate to 4.5%?

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