Investment property financing requires lenders to take on more risk and for doing so, they will require borrowers to pay more for these types of loans. This is either accomplished by charging a higher rate, more fees up front or a combination of both. Fees will vary from lender to lender. So, shopping banks is critical to finding the best deal.
Many direct lenders may not require any points up front but will charge you a higher interest rate for your refinance. However, mortgage brokers who act as middlemen in finding this type of financing may charge 1-4 points in fees to a borrower. A usual lender of last resort, a hard money lenders who specialize in investment property mortgages will charge from 1-4 points up front. If you are going through a broker who is in turn going through a hard money lender, you will pay handsomely for your loan.
The points you pay may affect the interest rate that you will receive. The more you pay, the lower the rate might be.
So, using simple logic, “paying down” more points will grant you a double edge sword. You pay less in interest rates and you have less to pay back. Just like a down payment, each point is equal to one percent of the total loan amount. If you have a $50,000 dollar loan and you “pay down” 10 points on the loan, you pay $5,000 dollars up front to obtain the $50,000. While logic may tell you to just take out a smaller loan amount, sometimes this is not possible. “Paying down” points is sometimes the only way to go.
How many points should you “pay down”?
This depends on your individual situation and the amount of money you need, of course! If you have bad-fair credit and are looking to finance some risky property venture, then you need to expect that you will pay the most amount of money for this type of loan. You will probably pay 3-4 points and you may not be buying down the rate at all. If you are just looking to purchase an investment home that is low risk and you have great credit and a fair amount if money down, expect to pay lower fees and points. Maybe 1-2 points for the loan and another point or so to buy down the rate.
Shop lenders and try to deal only with a direct lender to pay the lowest fees. You can also join our mortgage forum with over 30,000 people to get more answers to your loan questions.