Should I buy down interest rate?

[Leewood Chan]

I just got a deal for 3 beds 2 bath rental property for $247,500. The estimate rental is about $1,550-1,700.

My interest rate is 6.375%. My lender want me to buy down 1% with $1,800 Which make my interest 5.375%.

I asked my lender if I want to buy more down how much it will be. He said for 2% down is $4,990.

My question is which one should I choose 1% or 2%?

And it is wrong idea to buy down interest rate?

thank you

[Justin R.]

There is a simple trick for comparing rate buy downs.

1. Figure out your annual principle and interest payments over the first year with Par (no rate buy down)

2. Figure out your annual principle and interest payments over the first year at the buy down rate

3. Whats the difference? 

4. Divide the cost to buy down the points by the difference and you will find out how many years it takes to break even. If you hold the home longer than this and don't plan on another refinance than it may be worth while. I typically buy it down only if it pays for itself under 30 months time.