With the recent news about mortgage rates, many people have asked me about buying down their mortgage rate. For example, if you prequalify with a lender, you can buy down your interest rate from 8% to 7%. Making your monthly payment cheaper and more affordable.
If you’re purchasing a home and you’re asking yourself “Should I buy down my mortgage rate?” the answer is most likely no if you believe:
- Interest rates will decrease within the next 5 years
- You plan on selling your house within the next 5 years
Let’s do some math:
A mortgage lender may offer you the buyer the ability to reduce your interest rate by .25% in exchange for a point. A point is equal to 1% of the loan amount. Assuming your obtaining a mortgage for $500,000. To reduce your mortgage rate from 8% to 7% it’ll cost you $20,000 at closing. The amount you save per month for reducing your mortgage rate is $341. It’ll take you 59 months or 4.9 years to breakeven on your savings.
Which is why I say, if you’re thinking about buying down your mortgage rate. Ask your lender how many months it’ll take to break even and see if that fits your goals.
Thanks for reading,
Chris
