Discount Points

Discount points are fees paid at closing to lower a loan's interest rate, with one point equal to 1% of the loan amount. On a DSCR loan, buying down the rate lowers the payment and raises the ratio, which can move a borderline property over the lender's minimum.

How much rate a point buys depends on the lender's pricing on the day. On the site example, one point is $3,750. If it bought the rate down from 7.5% to 7.25%, the payment would fall by about $64 and the ratio would rise from 1.20 to about 1.22. The point would take about 59 months of savings to earn back.

Points make sense for a property you plan to hold past that break-even and for a ratio that needs a lift to qualify. They make less sense on a loan you expect to refinance or sell early, where a prepayment penalty may also apply.

Further reading: Discount Points on Wikipedia.