Is it worth paying for points?

[Michael King]

I'm finalizing the loan for a 4plex. The loan is 30 years for $240K and the quoted rate is 5.125%. I can buy it down to 5% for $1013, or 4.875% for $1644.

If I buy it down to 5% I save $25 in interest per month. It would take 41-42 payments to recover the $1013 and save $6600 over a 30 year loan without additional payments on the note. 

If I buy it down to 4.875% I save $50 in interest per month, and would take 33 payments to recover the $1644, and save $13200 over the course of a 30 year loan. 

We all like to save money and the answer in my mind seems clear - spend $1644 and buy it down for the $50 a month interest saving, and lowering the payment from $1320 to $1270. But what am I missing? Is there a better use I can make of that $1644? I plan on keeping it for no less than 10 years when my kids hit college. 

Or is this just a really dumb question / first world problem?

[Simcha Davidman]

@Michael King definitely not a dumb question.

I've gone through this before, and my final thought is usually the house always wins. So if the bank is offering it to you, it's probably because it's better for them.

But what would you do with the extra $50? Do you need that to cashflow? Can you invest that to keep your compounding machine running?

Or maybe more importantly, what would you do with the $1013 or $1644? Can you invest that to make the break even point even later? And then it becomes a matter of, how likely are you going to really keep this for 10 years, and even if you do, perhaps you'll refi at some point and lose out on the benefit of having that extra $50/month anyways.

Good luck!