Homebuyers that are searching for the lowest possible interest rates on their home mortgage can take advantage of what is called a rate buydown. When buying a new home or refinancing their existing dwelling, an individual can pay more money up front to “buy down” their interest rate to save money in the long run.
How Does a Rate Buy Down Work?
When you apply for a home loan, you will be given the opportunity to buy down your rate. This is done by buying mortgage interest points, which are simply a form of prepaid interest. For example, if you qualify for a 30-year fixed rate at 4.25% with no points, but you want a rate of say 3.875%, you can ask your lender how many mortgage points it would take to get the desired rate. Then, you would pay the corresponding cost upon closing on your new home or refinancing.
Who Is a Rate Buydown Right For?
A rate buydown makes the most sense for homebuyers looking to stick with their mortgage for a while, since it costs more money up front and the savings won’t be realized until down the road. How long is a while? If a homebuyer plans to stay in their home beyond the “breakeven period,” or the time it takes for the cost of the points to equal your monthly payment savings, they will realize the benefits of a rate buydown.
Talk to your Mortgage Professional at Eagle Home Mortgage about what it will take to get a lower rate. They can explain to you the mortgage points required, how much that will cost, and how long you have until the breakeven period, so you can decide if it’s the right move.
Keep in mind that whether you take advantage of a Rate Buy Down or not, mortgage rates are at an all-time-low, so it might make sense for homeowners to consider refinancing. Eagle Home Mortgage is here to help!