Yes, you can buy discount points on investment property loans. Investment property rates are typically 1% to 2% higher than primary residence rates, which means larger potential savings from points. Points are tax deductible as mortgage interest. However, shorter ownership timelines may prevent reaching break-even.
Investment Property Rates
Lenders charge significantly higher rates on investment properties because they represent higher risk. Expect 1% to 2% above primary residence rates. On a $350K investment property loan at 8% (vs 6.75% primary), the monthly payment difference is substantial. Buying points can make a meaningful dent in that higher rate.
Potential Savings
On a $350K investment loan at 8%: one point costs $3,500 and reduces the rate to 7.75%, saving about $58 per month. Two points ($7,000) reduce to 7.5%, saving about $115 per month. The higher the starting rate, the larger the dollar savings per point, because the payment difference between 8% and 7.75% is larger than between 6% and 5.75%.
Tax Deduction
Points paid on investment property loans are generally tax deductible as mortgage interest, and unlike primary residence points, they may be fully deductible in the year paid rather than amortized over the loan life. Consult a tax professional to confirm your specific situation.
Timeline Considerations
Investors often hold properties for shorter periods than homeowners. If you plan to sell or refinance within 3-5 years, points may not break even. The break-even on investment property points is typically 5-6 years, similar to other loan types. If your investment strategy involves flipping or short-term holds, skip the points and keep the cash for your next deal.