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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  • Jason WrayPro Member
    Banker · Nationwide · Member since 2020 · 2k+ posts · 1k+ votes
    10h

    Tomas,

    Hopefully you are not putting more than 10% Down if its an investment purchase becuase that rate would be too high for 15% or 20% down. Also make sure there is NO Prepayment penalty which will stop you from refinancing next year when rates drop in June. There are so many new progams out now since September please make sure you have looked at all of the program options and ran the rate and term options. You have to also consider 30, year, 40 year, ARM, I/O Interest only in case you want to maximize the initial up front cash flow and then refinance into a 30 year fixed when you drop the rate or pull cash out on the refinance.

    There are a lot of questions to ask and better to ask before paying for an appraisal or getting stuck in a rate lock and at closing. If you ever have any questions feel free to reach out or send me an email, I enjoy helping for free and talking REI. It's good to learn and know all of the loopholes out these before locking in and getting stuck!

    --

    [email protected]727-637-4289
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  • Ashish AcharyaBusiness Member
    CPA, CFP®, PFS · FL · Member since 2017 · 5k+ posts · 3k+ votes
    6h

    Tomas, your 48-month cash-flow break-even is a good starting point, especially if you realistically expect to refinance or exit within 36 months. I'd add one more piece to the comparison: the tax treatment of the discount points if this is an investment property. You don't necessarily get to treat the entire $6,000 as an immediate deduction, so I'd factor the timing of that tax benefit into the analysis rather than treating it as an upfront offset.

    I'd also compare the points against the opportunity cost of keeping that $6K available for reserves, rehab, or another investment. On a leveraged property, having additional liquidity can sometimes be more valuable than shaving a little off the monthly payment.

    So I'd look at it as:

    Upfront points -> monthly savings -> expected hold period -> tax treatment -> opportunity cost of the cash.

    If you're fairly confident the loan is gone within three years, keeping the $6K liquid looks pretty compelling based on the numbers you've posted. Happy to connect!

    [email protected]941-914-7779
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