Mortgage Discount Points & Interest Rates

[Billy Borus]

Hi everyone,

Newbie investor with a quick question regarding mortgage rates.

I was pre-approved for a loan, with the interest rate ranging from 2.75% to 3.75%. The discount points range from .359% to 2.703%. Obviously, the higher discount point will mean a better interest rate and higher cash flow monthly.  But that also means more cash at closing and in the deal.  Would you recommend taking the higher interest rate, and paying less at closing, or taking the lower interest rate and paying more?  Or would you maybe go somewhere in the middle?  I know both are really good interest rates, but one is obviously better.

Any insight would be appreciated.  Thanks!

[David M.]

@Billy Borus

You need to get hold of a true amortization table. You need to look at this similar to a refinance. Is it worth it for you to pay down the interest rate? So, how many years until you break even in interest payments saved to cover the cost of the points? Then, how long do you plan on holding onto that loan (not necessarily property since you could refi again — granted not too likely in this market).

Make sense? Good luck