Refinancing Options - Advice Needed!

[Peter Jaglom]

I'm trying to decide what to do with a refinance of my primary residence that will someday be a rental property.

Quick background: I'm in the military and purchased this property 6 years ago with a VA loan with no money down that tied up my entire VA eligibility. I lived in it for a little over a year, rented it for ~2.5 years, then lived in it again for the remainder. I'm not moving yet, but I will at some point (just the nature of the job), and I want to refinance out of the VA loan to reinstate my eligibility while it's still my primary residence. I also want to help the property cash flow when it becomes a rental by lowering the monthly payment. The area is good and getting better with a great elementary school around the corner and lots of development all around, so I want to hold onto the property if I can make it work.

The question is whether or not it's worth it to pay down the interest rate with points. I've received quotes for rates as follows (with options in between, but these are the front runners). Both are 30 year terms. I've done my own projections taking into account opportunity cost of the different discount fees, investing all saved cash flow, rent inflation, and inflation of expenses, which informs the conclusions about timing of each option.

3.125% and 2.675 points - lowest monthly payment, highest cash flow, and best if I hold the property for longer than 6-9 years, depending on assumed rate of return of invested savings.

3.75% and 0 points - higher monthly payment, cash flow breaks even in year 1, and best if I sell the property before years 6-9.

Is it as simple as deciding how long I think I'm going to hold the property and basing the decision on that? Anything else to think about?

Thanks for any help you might be able to share!

Peter

[Eric Veronica]

@Peter JaglomPersonally I never think that paying points is a good idea.  Sure if you are operating on the assumption that you will never sell or refinance then paying points will result in lest interest over a 30 year amortizatoin.  In reality that rarely happens.  Not to mention that rates move so much that you  may be paying 2.675 in points today to get a rate that would cost you 0 points a year form now.

Today you can get a rate at par that could have cost you 5 points a year ago.  I am sure people who paid points a year ago are kicking themselves.