Mortgage Rate Buy Downs: Does it Move the Needle?

If you’re considering buying a house, then you’ll likely be looking for ways to make the purchase more affordable. One strategy that many buyers use is a mortgage rate buydown. This means paying additional points upfront to lower the interest rate on their loan. Let’s take a look at the impact of buying down your mortgage rate by 1%.

Let’s Look at an Example…

Example, let’s assume you’re buying a $500,000 home with a 5% down payment and a starting interest rate of 7.1%. If you were to buy down your rate by one full percentage point to 6.1%, you’d pay an additional 1% of the loan amount upfront. In this case, that would be $4,500.

So, what impact would this have on your monthly mortgage payment? Well, if you didn’t buy down your rate, your monthly payment (including mortgage insurance) would be around $3,504. However, if you did buy down your rate, your monthly payment would be around $3,176. That’s a savings of over $320 per month!

Long-Term Impact of Rate Buy Down

But that’s not the only benefit. Over the life of a 30-year loan, the total interest you’d pay with a 7.1% interest rate would be around $966,000. However, with a 6.1% interest rate, you’d pay around $812,000 in interest. That’s a savings of over $154,000!

Of course, buying down your mortgage rate isn’t right for everyone. It depends on your financial situation and long-term goals. If you plan to live in your home for only a few years, then it may not make sense to pay upfront for a lower interest rate. On the other hand, if you plan to stay in your home for the long haul, then buying down your rate could save you a significant amount of money over time.

In summary, buying down your mortgage rate by 1% can have a big impact on your monthly payment and the total interest you’ll pay over the life of your loan, even with a smaller down payment. If you’re considering this strategy, be sure to crunch the numbers and make sure it aligns with your financial goals. #closedbyclough