Buying Down Points on Your Mortgage

[Kristie Eddy]

Hello!  I'm looking at my second income property in AZ and struggling with multiple brokers offering me multiple deals that vary slightly.  Some deals the rates are lower (4.5%) but their origination fees are higher and some (4.875) but fees are lower.  Does anyone know the best way to compare this? I've been told classic 'mortgage brokers' are a thing of the past.  Also, on buy and hold investment property does buying down points make sense?

[Bill Gulley]

To compare at the same note rate use the APR.

They buy down is usually a half point for an eighth on a rate with a 30 year amortization, generally it is not worth buying down unless it is necessary to qualify at a lower rate. 

To compare different rates and costs, add all the loan costs in as your loan amount, run that rate, do so for each option, look to the principal reduction over the term you intend to hold it or, if it's a rental, years 12 through 15 as the tax benefits wear thin in that time frame, where is your equity the best? 

I'd not buy a property that wouldn't cash flow at the street rate, if rents can't cover the standard rate, payments, taxes, insurance and management fees to me, allowing for vacancy and repairs, it's not a deal......unless there are other circumstances like tax benefits or expected appreciation that is well justified. Good luck :)