What Half a Point Actually Does to Your Payment (and Your DSCR)
Half a point sounds small. Here's exactly what it does to a monthly payment, to your cash flow and to the DSCR a lender sees, plus how to tell whether buying the rate down pays back.
Short answer
On a 30-year loan, half a point changes the payment by roughly $34 a month for every $100,000 borrowed: about $136 a month on $400,000. For a rental, that can move the DSCR across 1.0. Buying the rate down only pays if you keep the loan past the break-even point.
Key points
- About $1,600 a year on a $400,000 loan.
- Enough to move a rental's DSCR across 1.0.
- Points pay back only past the break-even month.
Half a point, in dollars
Monthly principal and interest on a 30-year loan at 7.50% versus 7.00%:
Monthly principal and interest on a 30-year loan at 7.50% and 7.00%. The gap grows with the loan: about $34 a month per $100,000.
| Loan amount | At 7.50% | At 7.00% | Monthly difference | Yearly difference |
|---|---|---|---|---|
| $250,000 | $1,748 | $1,663 | $85 | $1,017 |
| $400,000 | $2,797 | $2,661 | $136 | $1,628 |
| $600,000 | $4,195 | $3,992 | $203 | $2,442 |
Half a point, in DSCR
For an investor, the payment isn't just a budget line; it decides whether a rental loan qualifies. Take a $400,000 DSCR loan on a property that rents for $3,250 a month, with $375 in taxes and $150 in insurance.
Deal sheet: $400,000 DSCR loan, $3,250 rent, illustrative
| At 7.50% | At 7.00% | |
|---|---|---|
| Principal and interest | $2,797 | $2,661 |
| Taxes and insurance | $525 | $525 |
| Total payment (PITIA) | $3,322 | $3,186 |
| DSCR at $3,250 rent | 0.98 | 1.02 |
Same house, same rent. At 7.50% the rent doesn't quite cover the payment; at 7.00% it does. Many DSCR programs treat 1.0 as a key line, so half a point can change which programs fit, the pricing you get or how much you need to put down. More on the ratio in DSCR loans, explained.
Buying the rate down: does it pay?
Paying points, upfront fees each equal to 1% of the loan, can lower your rate. How much a point buys varies with the market and the program, so treat this as an example of the math, not a quote.
Say one point, $4,000 on a $400,000 loan, takes the rate from 7.50% to 7.25%. The payment drops from $2,797 to $2,729, a saving of $68 a month.
Break-even = $4,000 in points ÷ $68 saved a month ≈ 59 months
If you'll hold the loan for more than about five years, the buydown pays. If you plan to sell or refinance sooner, it probably won't, and on a DSCR loan a prepayment penalty can make an early refinance cost more still.
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Should you wait for rates to fall?
Nobody can time rates reliably, so frame the decision around your deal instead:
- Does the deal work today? If it cash-flows at today's rate, a lower rate later is a bonus you can refinance into.
- What does waiting cost? Rent you don't collect, and prices that may move while you wait.
- What would refinancing cost? Closing costs plus any prepayment penalty on the loan you'd replace; see cash-out and rate-and-term refinancing.
A deal that only works if rates fall is one to pass on. A deal that works today and gets better if rates fall is one to look at seriously.
Frequently asked questions
How much does half a percent change a mortgage payment?
On a 30-year amortizing loan at around 7%, about $34 a month for every $100,000 borrowed. On a $400,000 loan, that's roughly $136 a month, or $1,600 a year.
Is it worth paying points on an investment property loan?
Only if you'll keep the loan past the break-even point. Divide the cost of the points by the monthly saving; if you'll hold the loan longer than that, the buydown pays.
How does the interest rate affect DSCR?
A higher rate raises the payment, which lowers the DSCR. On a $400,000 loan renting for $3,250, moving from 7.00% to 7.50% takes the ratio from 1.02 to 0.98.
Should I wait for rates to fall before buying a rental?
Judge the deal at today's rate. If it works now, a lower rate later is a bonus you can refinance into, less closing costs and any prepayment penalty. If it only works at a lower rate, pass.
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