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  📉 Benefits of Buying Down the Rate with Points in a DSCR Loan

  Posted by Nadlan Group on April 9 at 23:15

  Purchasing discount points (commonly referred to as “buying down the rate”) is a powerful strategy in DSCR loans—especially for investors aiming to maximize cash flow and long-term return.

  Here’s a professional breakdown of the benefits of buying down the rate with points in a DSCR loan, ideal for your website or borrower education material:

  📉 Benefits of Buying Down the Rate with Points in a DSCR Loan

  1. Lower Interest Rate

  Each point (1% of loan amount) can reduce the rate by ~0.25%. This lowers monthly payments and improves cash flow.

  2. Improved DSCR Ratio

  A lower payment means a higher DSCR ratio, which strengthens the borrower’s profile and can help with loan approval or better terms.

  3. Better Loan Terms

  Some lenders offer better LTV, amortization, or approval chances if the DSCR ratio improves due to a lower rate.

  4. Higher Net Cash Flow

  For buy-and-hold investors, lower payments mean better monthly income from the rental property.

  5. Hedge Against Rate Increases

  If the market expects rising interest rates, locking in a lower fixed rate now with points can be a smart long-term play.

  6. Stronger ROI Over Time

  While paying points increases upfront costs, the savings over 5–10 years can far outweigh the initial investment.

  7. Easier Exit Strategy

  A property with lower debt service is more attractive to future buyers or refinancers, potentially raising resale value.

  8. Tax Deductibility (consult CPA)

  Mortgage points may be deductible as a business expense for investment properties. Always confirm with a tax advisor.

  💰 Example:

  Let’s say your borrower has a $300,000 DSCR loan:

  • Without Points: 8.25% rate → ~$2,254/month P&I

  • Buy Down with 2 Points ($6,000): 7.75% rate → ~$2,147/month P&I

  • Savings: ~$107/month or ~$1,284/year

  • Break-even: ~4.67 years

  If the investor plans to hold for 5+ years, the buy-down pays off.

  🧠 When Is Buying Down a Rate a Good Idea?

  See attached table

  Total 5-Year Loan Cost with Points Buy-Down

  Here is a visual chart showing the total 5-year cost (monthly payments + upfront points) for different rate buy-down options on a $300,000 DSCR loan. As you can see, buying down the rate with 2 points offers a significant cost advantage over the 5-year period, hitting the optimal break-even point.

  See attached graph

  

  

  

  Nadlan Group replied 1 week, 6 days ago 1 Member · 0 Replies

  • Buy Down
  • DSCR
  • Points
  • Rate
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