Lender quoted 1.5 points to drop from 7.12% to 6.65% on a 3-year hold. Math says don'

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Lender quoted 1.5 points to drop from 7.12% to 6.65% on a 3-year hold. Math says don'

Tomas Jems
Technology · NY · Member since 2026 · 27 posts · 9 votes

Hey BP community, analyzing financing on my latest deal and running into the classic "Points vs Cash" dilemma.

Lender is offering to drop my rate from 7.12% down to 6.65% for 1.5 discount points ($6,000 upfront on a $400k note).

Here is the breakdown:

• Standard payment at 7.12%: $2,693 / mo

• Reduced payment at 6.65%: $2,568 / mo

• Monthly savings: $125 / mo

Break-even calculation:

$6,000 upfront ÷ $125/mo savings = 48 months (4 full years).

My projected exit/refinance horizon is 36 months max. Paying points here looks like a guaranteed loss of cash that could be used for rehab or reserves.

Ran the full amortization break-even chart here:

https://smartmortgagecalc.space/blog-mortgage-discount-points-worth-it

Are you guys buying down rates in today's environment, or keeping dry powder in cash reserves?

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  • Adam Crum
    Lender · Martinsburg, WV · Member since 2026 · 5 posts · 2 votes
    19h

    If you're planning to exit or refinance within 3 years then the points really don't make sense. Have you looked a 3, 5, or 7 year ARM? If you want another opinion I'd be happy to take a look for you or see if I can beat your current offer 👍

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  • Divin KanyamaBusiness Member
    Accountant · Seattle, WA · Member since 2025 · 391 posts · 153 votes
    15h

    @Tomas Jems This is a good example of why the lower rate is not automatically the better deal. With a 48-month payment break-even and a planned exit or refinance within 36 months, keeping the $6,000 available for rehab, reserves, or unexpected costs likely provides more value than the monthly savings alone.

    It is also worth comparing the loan balances at month 36, since part of the benefit from the lower rate may show up as slightly faster principal reduction. Even then, the decision really depends on how confident that three-year horizon is. If the property may be held much longer, the points become more attractive; if the exit is firm, liquidity usually carries more weight.

    For shorter-hold investment deals, preserving dry powder often wins unless the lender offers a much faster break-even or the points improve another important term. The key is to calculate the true break-even using payment savings, principal balance, tax treatment, and the realistic holding period—not just assume that a lower rate is always worth paying for.

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