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THE SCENARIO
In the past, we've covered the concept of paying money up-front when getting a loan in order to get a lower interest rate. This week, I was evaluating just such a situation, and determined that I could make a 17.65% return on my money if I bought the rate down as much as the lender will allow. However, I only achieved that return if I kept the loan until it was entirely paid off, and oftentimes loans are paid off through sale or refinance before their entire (usually 30-year) term elapses.
The question: If I want to make at least 10% on my up-front rate-buydown money, how long will I have to keep the loan*...
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