Rental Property Investor · Dresden Germany · Member since 2021 · 25 posts · 17 votes
Hello all, im looking for some feedback on if a rate buy down would be a good decision right now or not. I have one unit rented below market value and will be upping rent after lease is up but okay with the numbers they are now, however an extra 3k a year would be nice. it would take roughly 6 years to make this make sense, I plan to hold the property long term as of right now.
Is there potentially something I may be missing on running the numbers or understanding this? is it a smart move to make right now?
What are you planning on doing with that money? Does it literally only cost you $250. I think there is a bit more to it as your current loan is $498K at 6.625% and the new mortgage would be for $515K at 6.25%-why does the principal go up $17K? Guessing that is where the 6 years comes from ($17K/$250 monthly would take just over 5.5 years). Try running your numbers to see what it looks like after 10 years (assuming you plan on holding the property that long) if instead of pocketing that $250 a month, you put it towards the lower interest mortgage-how much would you save then?
Mortgages in Canada work differently-we have to renew them every 1-5 years for the length of our mortgage (eg for 20 years). Most will let you increase payments or do lump sum payments (with limits). Increasing your payments can shave years off your mortgage and save you a lot in interest....and also lower your mortgage payments when you do renew.
There are a few things missing in this post to be able to answer accurately. I can pretty much guarantee the rate buydown from a 6.625 to a 6.25 is not $250. Secondly, where did the 6 year payback calculation come in?
There are a few things missing in this post to be able to answer accurately. I can pretty much guarantee the rate buydown from a 6.625 to a 6.25 is not $250. Secondly, where did the 6 year payback calculation come in?
The out of pocket cost is 250, the cost including taxes and fees is roughly 17k but is rolled into the new morgage...250 a month would be about 17k over 6 years.
What are you planning on doing with that money? Does it literally only cost you $250. I think there is a bit more to it as your current loan is $498K at 6.625% and the new mortgage would be for $515K at 6.25%-why does the principal go up $17K? Guessing that is where the 6 years comes from ($17K/$250 monthly would take just over 5.5 years). Try running your numbers to see what it looks like after 10 years (assuming you plan on holding the property that long) if instead of pocketing that $250 a month, you put it towards the lower interest mortgage-how much would you save then?
Mortgages in Canada work differently-we have to renew them every 1-5 years for the length of our mortgage (eg for 20 years). Most will let you increase payments or do lump sum payments (with limits). Increasing your payments can shave years off your mortgage and save you a lot in interest....and also lower your mortgage payments when you do renew.
What are you planning on doing with that money? Does it literally only cost you $250. I think there is a bit more to it as your current loan is $498K at 6.625% and the new mortgage would be for $515K at 6.25%-why does the principal go up $17K? Guessing that is where the 6 years comes from ($17K/$250 monthly would take just over 5.5 years). Try running your numbers to see what it looks like after 10 years (assuming you plan on holding the property that long) if instead of pocketing that $250 a month, you put it towards the lower interest mortgage-how much would you save then?
Mortgages in Canada work differently-we have to renew them every 1-5 years for the length of our mortgage (eg for 20 years). Most will let you increase payments or do lump sum payments (with limits). Increasing your payments can shave years off your mortgage and save you a lot in interest....and also lower your mortgage payments when you do renew.
the cost of the rate buy down is roughly 17k, i may have my numbers a little high after talking to my lender...but they would roll the cost into the mortgage and only require an out of pocket cost of 250. I see it as a good opportunity to get better cash flow now. I plan on holding 6+ years and having a better net will show a better DTI when going for my next property.
Thanks for breaking this down so clearly, it’s a real world scenario many people can relate to. From a long-term hold perspective, that $250 monthly reduction does start to add up, especially if you’re looking at improving cash flow now and gradually repositioning the asset. Six years to break even isn’t bad if you’re confident in the hold timeline and local rental market. One thing to consider is how stable rates will be moving forwardlocking in now could make sense if the cost is low and the math is in your favor. If you ever want to chat about how others are funding or restructuring deals to improve monthly spread, feel free to connect. I’ve seen a few creative approaches that might spark ideas.
My goal is to improve cash flow and on paper DTI for future property investments. I plan on holding and the Phoenix tempe market isn't going anywhere but up, im right next to asu.
Sent connect invite, lets chat always interested in learning more!
Thanks for breaking this down so clearly, it’s a real world scenario many people can relate to. From a long-term hold perspective, that $250 monthly reduction does start to add up, especially if you’re looking at improving cash flow now and gradually repositioning the asset. Six years to break even isn’t bad if you’re confident in the hold timeline and local rental market. One thing to consider is how stable rates will be moving forwardlocking in now could make sense if the cost is low and the math is in your favor. If you ever want to chat about how others are funding or restructuring deals to improve monthly spread, feel free to connect. I’ve seen a few creative approaches that might spark ideas.
My goal is to improve cash flow and on paper DTI for future property investments. I plan on holding and the Phoenix tempe market isn't going anywhere but up, im right next to asu.
Sent connect invite, lets chat always interested in learning more!
I wouldn't do anything with a 6 year payback in this market personally, for 17k you could refinance that loan twice and get a much lower rate in the future. It's 100% your call but while I expect rates to stay persistently high for a while, I don't think they will stay high for 6 years.