Points – buying the interest rate down

What does it mean to buy down the interest rate, and is it worth doing? This is a great question that all individuals should consider under certain circumstances.

If you are a buying a home on a fixed mortgage and are planning on living in it for at least 3 years or longer, than consider buying the interest rate down.

Buying the interest rate down, simply put, is paying the lender a specific fee called a loan discount to get a better interest rate than the lender is currently offering.

An example of this might be something like this. You find a home that you are buying for $200,000, and a lender is offering a current interest rate of 5.0% on a 30 year fixed loan. You decide you want a better rate than what is being offered. So the lender allows the rate to be bought down, to lets say 4.75% on a 30 year fixed mortgage for 1 point. This means the lender will give you the 4.75% interest rate for paying the lender an extra $2000 dollars.

The question here, is it worth it? By working with your loan officer, it can be quickly calculated to determine how long it takes to recapture the $2000 paid for buying down the interest rate. If the recapture period in this example is less than 3 years than it would make sense to buy the rate down.

Questions ? Please Contact me:

Tom Themelis 206-755-7365

Email: tomt@homeloan4me.com

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