Mortgage Buydown for Turnkey Purchase

3 Replies

I am about to purchase my 2nd turnkey property from Memphis Invest since 1st one has turned out great so far. As with first property, the plan is to buy and hold for the long term, and to create income streams that I can take advantage of many years in the future when the mortgages are paid off.

Mortgage amount with 25% down will be 119,925, and the regular mortgage rate I was quoted by my preferred lender is 4.875%. I also have the option to buy down the rate to 4% with 1.662 points. Thus, for $1,993 at the present, I can lower the monthly mortgage payment by $62. The breakeven would be about 2.66 years. Given that I plan to hold long term, sounds like this would save me a ton in interest over the life of the mortgage and would provide a huge return on the $1,993 investment.

Curious to hear thoughts from others. Any reason why I shouldn't take that buydown option and get the mortgage at 4%, assuming I have no issue paying the $1,993 at the present?

Most of the investment properties I am working on right now, the investor is electing to buy down the rate. An unusually high volume of refinances at the moment. A lot of my mortgage industry insider colleagues are refinancing right now - that should tell you something. 

A "normal" buydown schedule looks approximately like 1 point gets you 0.25% to rate, which means that "normally" ~1.5 points would get you 0.375%. Break even points are typically in the 5-7 year range.

Right now, as you are seeing, it's basically "half off" with a lot of lenders. If it ever made sense, now's when it does. Break even points from the low 2s to mid 3s is where the market is at, depending on this, that, and the other.

Thats pretty much what I figured.  Seemed like the logical route to take 1.662 points for .875% reduction.  Given that this is a long-term buy and hold turnkey (which is fully renovated on all fronts and like new), a 2.6 year breakeven seemed like nothing.

I would agree with @Chris Mason ! Now is a great time, and banks are having to be more competitive to get deals done. In this climate it might be a good idea to get a couple other banks to give you term estimates as you can usually use those to get even better rates and terms!