My business partner and I had an offer accepted on a duplex. The price we paid is $169,900. When looking at loans we've found one at 4.25% and that required 20% down. We found another at 4.75%-5.25% based on our credit score and requires 25% down. This 4.75% is if out credit score is 740 or better and the 5.25% is if our credit score is 700. We can get this loan for 3.5% if we buy 3.375 points and our credit score is 740 or 4.125 points if our credit score is 700. Our loan amount would be $127,425. Paying for the 3.375 points would be $4,300.60 and the 4.125 points would be $5,256.28. Our loans would be for 30 years. Is the 4.25% or the 3.5% the better deal? One will cost a lot more up front than the other.

I'm struggling to understand why a bank would give us a deal when they could make more money off of us in the long run. Am I missing something?

More information on us. We each own our own homes, but both are fully paid off. We own no debt. Both our college loans are paid off and our cars are paid off. We have about $150,000 in cash between the both of us after this deal. We are 26 and 29 years old so we have plenty of time to let this sit.

Any advice would be greatly appreciated. Thanks!

"I'm struggling to understand why a bank would give us a deal when they could make more money off of us in the long run. Am I missing something?"

There really isn't a "long run." Between refinances, life plans changing, divorce or partnerships falling out, people selling, etc etc, the average life of a mortgage loan is in the 5-7 year range, not 30. That's why back in the 90s 5/1 and 7/1 ARMs were so popular, it lined up right with how long people had mortgages anyways. I bet if you calculate the break-even, you will find that it too is in the 5-7 year range. You're placing a bet against the casino, and the casino only needs to win 51% of the time to come out ahead overall, no one on Wall Street is sitting there watching your particular loan and if you buy points or not, any more than the owner of a casino is watching one particular person put one quarter in one slot machine.