1999 Mazda 626 LX, good deal, pls hlp?

I recently purchased a 1999 mazda 626 LX for $ 1500, engine is losing compression. Other then the engine the car is immaculate inside and out. Fully loaded and licensed till 2008. I found a reputable company that will overhaul the engine with a 5 yr 100,000 mile warranty for $1200. Was this a smart buy?