Would you pay points here or keep the cash?

Question

I was going back and forth with someone about this today and thought it was a good question for the group.

Say you’re getting a $250K DSCR loan and have two options:

7.25% with no pointsPayment is about $1,705

or

6.75% with 1.25 points ($3,125)Payment is about $1,621

So you’re paying $3,125 upfront to save roughly $84/month.

That puts your breakeven at around 37 months.

This is where I always get curious about how other investors think. If you know you’re holding the loan for 5+ years, paying the points makes sense. But if there’s a decent chance you sell or refinance within 2-3 years, I’d almost rather keep the $3K in my pocket.

Especially with DSCR loans where you may already have a prepay to think about.

What are you guys doing in this situation?

Taking the 7.25% with no points or paying $3,125 to get 6.75%?

Divin Kanyama · Answer

@Sean Davoodian Your math is basically right: $3,125 divided by $84 puts the simple breakeven at about 37 months. I would want a comfortable margin beyond that, though, because the upfront cash has value and the loan may be paid off earlier than planned.

If I were confident I would keep the loan for five years or more, the lower rate would be reasonable. If a sale or refinance within two or three years is realistic, I would probably keep the $3,125—especially with a DSCR prepayment penalty already limiting flexibility.

I would also compare total interest and cash flow over the expected hold period, not just the monthly payment, and confirm whether the points are true discount points or lender fees. There is no universal answer, but when the timeline is uncertain, liquidity usually has value. Of course, the better option ultimately depends on the final loan terms and your broader investment plan.

Jorge Vazquez · Answer

Personally, I’d keep the $3,125 and put it into a separate reserve account for the property. Saving $84 a month just isn’t enough for me to justify tying up that cash for 37 months. Over the next 12 months, you might be able to increase the rent by $50–$100 anyway, depending on the market. More importantly, one unexpected repair could easily cost $3,000 or more, and I’d rather have that money available to keep tenant happy and renewing.

There’s also the possibility of refinancing in a few years if rates come down, which means you may never recover the cost of those points. Unless that $84 makes the difference in qualifying for the DSCR loan, I’d rather keep the liquidity. After years of owning rentals, I’ve learned that cash reserves and flexibility are often worth more than a slightly lower mortgage payment.

Sean Davoodian · Answer

That makes a ton of sense. I would lean towards that as well.

Sean Davoodian · Answer

Couldn't agree more!

Austin Hughes · Answer

I almost always choose to keep the cash.

David Lurvey · Answer

Depends on whether the deal needs the $84.

On a DSCR loan, that payment drop is DSCR, not just savings. Say rent is $2,300 and taxes plus insurance are $600. At 7.25% your PITIA is $2,305, a DSCR of 0.998. At 6.75% it's $2,221, a DSCR of 1.04. Same house: the points turn a "no" into a "yes", or move you into a better pricing tier.

It happens more often than you'd think. I ran this week's listings at 25% down, and buying the rate down half a point (7% to 6.5%) takes Tampa from 108 site-built 1–4 unit listings that cover PITIA to 169. Sarasota and Venice go from 119 to 179. A lot of deals sit less than $100 a month short.

So my rule: pay the points when the payment drop is what gets the deal to qualify, or into a better DSCR tier. If it clears without them, keep the $3K. Lenders want reserves, and cash matters more in year one than $84 a month. And on the 2–3 year exit: with a 3-year prepay you're probably holding about 36 months anyway, which is right at your 37-month breakeven.

(Disclosure: the listing numbers come from NetsPositive, a screener I built.)

Robert Franks · Answer

can someone recommend a good lender for a DSCR loan?

V.G Jason · Answer

Depends on existing portfolio and current liquidity, but likely pay points.

Adam Summerer · Answer

Your math is right, but on DSCR I'd look at the prepay before the breakeven. If it's a 3 or 5 year step-down you're probably holding through most of those 37 months anyway unless you want to eat the penalty, so the points get easier to justify. If you're buying out the prepay to stay flexible, that already costs you rate, and I'd keep the cash. Also ask whether the 1.25 is on top of origination or replacing it, lenders quote that diffrently.

Chris Seveney · Answer

I would take the points as I do not see rates going down enough in 36 months to make a refinnance worthwhile especailly with a ppp

Would you pay points here or keep the cash?

Would you pay points here or keep the cash?

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