When financing an investment property, one decision worth evaluating is this:
Should you pay mortgage points to secure a lower interest rate?
Sometimes it’s a smart move. Sometimes it’s wasted money.
The answer comes down to one key factor: how long you plan to keep the loan.
What Is a Mortgage Point?
A mortgage point is prepaid interest paid upfront at closing in exchange for a lower interest rate.
You may also hear this called a rate buydown.
One point equals 1% of the loan amount.
So on a $400,000 loan:
-
- 1 point = $4,000
- 2 points = $8,000
That cost is added to your closing funds.
How Much Can Mortgage Points Lower Your Rate?
This varies by lender, but one point often reduces the rate by roughly 0.25% to 0.35%.
I recently quoted two different lenders on a 30-year $400,000 DSCR rental loan:
Lender A
-
- 0 points = 6.60% → $2,554.64/mo
- 1 point = 6.32% → $2,481.11/mo
- Monthly savings: $73.53
Lender B
-
- 0 points = 6.45% → $2,515.13/mo
- 1 point = 6.13% → $2,431.74/mo
- Monthly savings: $83.39
Same loan amount. Same borrower scenario. Different lender pricing.
That’s why comparing lenders matters.
For rental property investors, an extra $75–$85 per month can materially improve long-term cash flow over time.
The Most Important Number: Break-Even Period
Mortgage points are an upfront investment. The real question is how long it takes that investment to pay for itself through lower monthly payments.
That timeline is your break-even period.
Use this formula:
Cost of Points ÷ Monthly Savings = Months to Break Even
For Lender A:
-
- Cost: $4,000
- Monthly savings: $73.53
$4,000 ÷ $73.53 = 54 months (4.5 years)
After that point, the lower payment becomes net monthly savings.
When Paying Points Can Make Sense
Consider paying points if you:
-
- Plan to hold the property long-term
- Want stronger monthly cash flow
- Expect to keep the same loan for several years
- Want to improve DSCR and strengthen loan qualification
When Paying Points May Not Make Sense
You may want to skip points if you:
-
- Plan to sell before reaching your break-even point
- Expect to refinance before recovering the upfront cost
- Prefer to keep cash available for reserves, repairs, or renovations
- Can earn a higher return by deploying that cash elsewhere
Final Thought
Mortgage points are not automatically good or bad.
They’re simply a tool.
If you’ll own the property long enough to pass your break-even point, paying points can create long-term savings.
If not, keeping your cash may be the smarter move.
Thanks for reading this week’s Experience, and best of luck in your real estate investing journey!
-BROCK
Frequently Asked Questions (FAQ)
How many mortgage points should I pay?
It depends on your break-even period, cash flow goals, available capital, and how long you plan to keep the loan.
Are mortgage points worth it on a rental property?
They can be if you plan to hold the property long enough to reach your break-even point.
Do mortgage points improve DSCR?
Yes. Lower monthly payments can improve your debt service coverage ratio and may strengthen loan qualification.
Should I pay mortgage points if I plan to refinance soon?
Usually not, since refinancing early may prevent you from reaching your break-even point.
Need Help Comparing Investor Loan Options?
At One Nation Capital, we help investors compare rates, points, DSCR terms, and long-term financing strategy.
Request a quote today.