Lenders - pros and cons of 20% vs. 25% down for better rates

[Alex Kernus]

Hey BP!

Quick math/thought process question - I'm under contract on a $118k SFR. My lender says if I put 20% down, I'll pay 0.5 points for a 3.875% rate, and if I put 25% down, I'll pay 0 points for a 3.5% rate. Math as follows:

- 20% down with 0.5 points and a 3.875% rate would require a $24,072 cash outlay (excluding other closing costs) and would get me a $444/month PI payment

- 25% down with no points and a 3.5% rate would require a $29,500 cash outlay (excluding other closing costs) and would get me a $397/month PI payment

With the 25% down payment, I'd be saving $47/month in exchange for an additional $5,428 cash outlay. Breakeven here is about 115 months.

Although, as of today, I do plan on holding the property for longer than 115 months, I'm still gravitating toward the 20% down payment because I know I can go out and deploy that $5.4k cash outlay saved in productive ways that'll yield me over a 10% return.

Am I thinking about this holistically? Does the fact that the entire $5.4k additional outlay for a 25% down payment would be going straight into equity in my property change anything?

Thanks!