Buying Down Your Mortgage Interest Rate, Is It Worth It?
Utilizing A Buy-Down To Maximize Your Purchasing Power!
When you’re looking at buying a new home, there are many factors that go into consideration. One of the most important considerations is how much interest rates will affect your borrowing power and therefore cost over time.
What if we could avoid this altogether?
A higher interest rate can reduce one's purchasing ability greatly. Luckily for homeowners who want nothing more than an easy purchase process, "buy downs" exists.
You can save money on your interest rate by paying an upfront fee in exchange for a lower rate. It's called "rate buydowns," and it increases your closing costs but will reduce how much you pay every month towards the mortgage!
This allows you to purchase your home at a more attractive rate. A rate buydown is when you pay an upfront fee in exchange for a lower interest rate. This increases your closing costs and for every 1% of the purchase price you pay in points, your mortgage interest rate is reduced.
Buying a lower interest rate may be a good strategy for a home you intend to keep for a long time, thus making up the difference over the life of the loan.
There are different ways you can do a rate buydown.
The first is a simple payment with higher closing costs upfront and lower interest rates than usual for loans.
The second way is to have a temporary buydown that is set for a period of 2 to 3 years. However, if the buyer doesn’t refinance, then their interest rate returns to a higher rate. This option is usually offered by builders or lenders to incentivize a closing.
Overall, there are two ways you can utilize a buy down rate when buying a property that creates long term benefits. If you are thinking about buying, I would love to connect with you and discuss your options!