Paying points and roll in closing cost to Refi worth it?

Question

My current MFH in Chicago rate is 4.5%. I couldn't find anyone who can beat that rate with no points no fees. There is an options for me to buy 2 points down to 3% with an all in closing cost of about $14k which all can be rolled into the loan. My payment would be $330 lower a month so it would take me about 3.5 years to break even and 2.5 years to pay off the extra $14k rolled into my loan with principle payment every month.

Is it worth it? I don't plan to sell the rental property anytime soon since it's a good cash flow. I'd save over $68k on interest over the life time of the new refi mortgage. I normally only refi with no points no fees but even in this super low interest rate, MFH investment property refi rate is still so high.

David Kelly · Answer

@Suduk N.

Make sure you get at least one other quote to shop the rates and fees on this refinance.

Suduk N. · Answer

I’ll get back about $2500 from current escrow account. Without escrow the rate and points go up a bit so i think escrowing is better. Thanks for all the inputs guys. I’ll pull the trigger on this since I have not been able to find any good deals for investment Property refi for a year.

David M. · Answer

@Suduk N.

As long as your goal is to hold this long term, that's some really cheap money so definitely do it.

I personally don't count the prepay/escrow monies as a cost.  I don't see them as a cost since its for making your required payments anyway.  Also, you should be getting your prepay/escrow amounts "back" from your current loan so it should be a wash cashflow-wise.  If you want, have you asked if they will allow NOT escrowing the taxes?  Usually you need at least 20% down.  Also, you have to want to actually make the payments yourself.  At least you won't have that cash tied up in an escrow account.

Accounting like this, you really should be making back your actual "expenses" within 2-3 years which is much more comfortable.

Suduk N. · Answer

Thanks guys, I’m Thinking to pull the trigger on 2.875% refi from 4.5% with 2.47 points. Lender cost $10k other cost (prepaid tax, escrow..) $5k all rolled into the refi so no out of pocket. Will take 2.7 yrs for break even lender cost and 4 yrs for total cost. $320 more cashflow every month and tenants will be paying the fee for me over time. Would you guys do this deal?

John Warren · Answer

@Suduk N. you answered your own question. You don't plan to sell, so you have the 3.5 years to recoup your costs and then you will have locked in the low interest rates. This is a no brainer move in my opinion.

David M. · Answer

@Suduk N.

2.5yr timeline to recoup refi costs isn’t that bad. It’s about right for the older general rule of them.  If you are planning to hold for many years to come, you still are saving lots.  I say go for it if you can’t find another/better deal.

Good luck.