THE SCENARIO
I've recently been talking with a lender to refinance a property. They told me that they can lend me $97,500 for 30 years at 7.375%, fully amortizing. They also said that if I paid them $2,015, they could reduce the rate to 6.5%. This is a commonly-available feature when you're getting a new loan, and is called 'buying down the rate'. Many times, the bank will have a variety of options with different costs, and they often won't tell you about it unless you ask. But sometimes it can be worth it to do a rate buy-down.
So I'm considering whether to just take the 'standard' refinance rate, or whether to pay the money to get the lower rate.
My question is 'If I buy down the rate, what's my return on the $2,015 I have to spend in order to do so?'
THE SOLUTION
This is a four-parter, but...
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