CASH ON CASH ANALYSIS- Primary home
I am under contract on a house hack! I am using a USDA loan and will end with very little if any closing costs. I have the opportunity to buy points to lower my mortgage. The minimum rate i can buy is 6.5% and it will cost me $4,333 the highest rate I can get will be 7.25% and they will actually credit me back $633. The difference between the 6.5% payment and the 7.25% payment is $165/month or $1980 a year. Using the COC formula COC=Annual cash flow/cash invested I found that 6.5% was $1980/$4333= .456 or 45% COC return. (not bad i'll make my money back in a little over two years) the 7.25% is ($-1980)/($-633)= 3.12 or 312% COC return on my money which is x6 more then the lower rate. I put the amounts as negative because i am not receiving 1980 and i am not investing the 633- its actually being credited to me. Since I am house hacking i will not be covering a majority of the mortgage & I plan on using the 4333 on buying another property that will make me much more the $165 a month. Also if the rates fall I plan on refinancing anyways which would cost me about 5k) Do you agree its a better use of my money to invest on another property vs spend on lowering my mortgage $165/month?