Trading Mortgage Points for Cash Credit

[Chris Cantrell]

Hello,

I am selecting my financing for my first duplex. Currently my best option is 4.5% with all lender closing costs waived (due to my company relocation package).

Here is the question. If I go with 4.625% I can get a credit of $1100 and 4.75% will get me a $2400 credit. I am looking to purchase another property in the near future and have some other business ideas so cash in hand could be valuable in the future. Going from 4.5% > 4.75% increases the monthly payment by ~$20

What decision would you make?

[Matt Devincenzo]

I'll piggy back off what @Christopher Cole said. I took the reduced rate...before I knew better ;)

If you work out the math in an excel spreadsheet real quick you'll notice that the return you need to get on those points to beat the cost over 30 years is about 1/4-1/2% better than your loan rate. So if you can invest in anything yielding better than 5% you'll come out ahead. So the simple way to look at it is just can I get a better return than XX+1% with XX being your loan rate. 

My guess is that you can see which is the better choice here.