Rate Buydowns

Buying Mortgage Discount Points

The easiest way to buy down your mortgage rate is to buy discount points. Each point is 1.0 percent of your mortgage amount, and reduces your mortgage rate by 0.25 percent. For example, if you are offered a 6 percent interest rate on a $100,000 loan, you can pay one point ($1,000) to get a 5.75 percent interest rate instead. You can buy down your interest rate by up to 1.0 percent to reduce your interest costs and get a lower payment.

Before you choose to complete a rate buydown, make sure you take the time to compare your monthly savings with how long you plan to own the home. How many months will it take to break even? The longer you stay in the home, the more a rate buydown will pay off.

Sometimes you can roll the cost of discount points into your home loan, but this can defeat the purpose of the points by reducing your savings and changing your loan-to-value ratio, which may make other costs go up.