Buying Points for a Lower Rate

3 Replies

@Nathan Braithwaite . Points are essentially prepaid interest. Whether they’re good or not depends on the situation. Do the math. How many months is break even? What’s the present value of the savings? How long do you plan to own the property? In general I’m not a fan.

Originally posted by @Nathan Braithwaite :

I dont know much about buying points to get a lower interest rate for a conventional loan. How much do points typically cost, and do they make economic sense for realestate investors?

 Typically 1 point gets you 0.25% to rate.

Right now is not typical. A lot of lenders are pricing at dang near close to "half off." Right now what that means is that after I'm done showing the consumer the rate sheet and how to calculate a break even point, I end up with well over 90% of my clients electing to buy the rate down. We're seeing 3-4 year break evens, 5 to 7 is more typical. Flippers aside, who goes to the trouble of buying a house that they will not own for at least 3 or 4 years?