13. BRRRR Strategy and the Rate Buy Down

This is the next installment in a multi-post series on financing your rental investment properties using the BRRRR strategy.

One of ways to affect your interest rate is the rate buy down. This is a fee you pay your lender at closing for a reduced interest rate on your loan. Your lender benefits from this transaction by receiving cash up front, and you benefit by obtaining a lower interest rate for the life of the loan. One-point costs 1% of your loan amount, or $1,000 for every $100,000. If your loan is $120,000, for instance, one point would cost $1,200. Buying one point can reduce your interest rate by 0.25%, but the exact discount can vary by lender.

Let’s assume you are approved for a 30 yr. fixed/30 yr. am $120,000 loan. At 5.5%, you monthly P&I payment would be $681.35 with the total interest paid of $125,284.85 after 30 years. With a 1 pt. buydown of $1,200, your effective rate would drop to 5.25%. Your monthly payment would then be $662.64 with total interest paid of $118,552 after 30 years. That is a monthly savings of $18.71 and a total interest savings of $6,732.85 over the life of the loan. It will take you 67 months or 5.6 years to pay off the point you purchased.

As an investor, does this make sense? You decide.

Looking for funding? REI Trader, LLC has purchase, refi and fix and flip loan programs for your SFR, rental and multifamily portfolios. For rates and terms, please email jonathan@reitrader.com

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