Buying points, Cash out-of-pocket, and the BRRRR Method

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JD MartinBusiness Member
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Rock Star Extraordinaire · Northeast, TN · Member since 2015 · 10k+ posts · 17k+ votes
6y

Generally doesn't make sense unless you're talking about a slow-motion process of a few years. You can do the math and figure out how long it takes you to recapture the expense in your mortgage payment. Example: if you spent 1 point to buy down 1/4 percent interest on 100k at 5 percent, you save about 15 bucks a month on the mortgage but spend $1k to buy the point. $1000/$15 = 66 months to break-even. That's 5 1/2 years.

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  • JD MartinBusiness Member
    Moderator
    Rock Star Extraordinaire · Northeast, TN · Member since 2015 · 10k+ posts · 17k+ votes
    6y

    Generally doesn't make sense unless you're talking about a slow-motion process of a few years. You can do the math and figure out how long it takes you to recapture the expense in your mortgage payment. Example: if you spent 1 point to buy down 1/4 percent interest on 100k at 5 percent, you save about 15 bucks a month on the mortgage but spend $1k to buy the point. $1000/$15 = 66 months to break-even. That's 5 1/2 years.

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  • Tim Herman
    Member since 2018 · 2k+ posts · 1k+ votes
    6y

    @Aaron Breitbarth what do the numbers say. Learn to use a calculator. Points are 1% of amount borrowed. Extreme example. Borrow 100k. Option of paying 2 points to get a lower rate. Original 10% but pay 2 pts get for 5%. Difference of 5% on amount borrowed. 100k*.05=5k loan difference. Cost you 2k to save 5k on a year.  Same scenario except no points is 5% and 2pts is 4%. There is a 1% difference. It is costing you 2k to save 1k in a year. You would have to tie up your money for 2 years to break even. All these scenarios are ignoring mortgage paydown but will be real close.

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  • Aaron Breitbarth
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    Member since 2019 · 4 posts · 0 votes
    6y

    @Tim Herman Hello, Tim. I'm purchasing a home for ~$70k. Seller is paying closing costs on a VA Loan. I want to live in it and fix it up for a year—this my second time purchasing a home. I have no idea what the best course of action is.

    I have the cash to buy it outright, but I want to move from an HCOL to an LCOL and start investing in diverse real estate.

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  • JD MartinBusiness Member
    Moderator
    Rock Star Extraordinaire · Northeast, TN · Member since 2015 · 10k+ posts · 17k+ votes
    6y
    Originally posted by @Aaron Breitbarth:

    @Tim Herman Hello, Tim. I'm purchasing a home for ~$70k. Seller is paying closing costs on a VA Loan. I want to live in it and fix it up for a year—this my second time purchasing a home. I have no idea what the best course of action is.

    I have the cash to buy it outright, but I want to move from an HCOL to an LCOL and start investing in diverse real estate.

     If the seller is paying all the closing costs and it is included in the closing costs, then for sure I would do the rate buy-down. That's free money. I assumed you were paying your own closing costs. 

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  • Aaron Breitbarth
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    Member since 2019 · 4 posts · 0 votes
    6y

    Thanks again, @JD Martin. I'm confused, again. I thought the title company set the closing costs. What do you mean, JD?

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