| How do you buy down an interest rate? When is the | | | | before if you paid the 1 point on a $300,000 loan and |
| right time to buy down the rate? Answer these two | | | | lowered you interest rate to 6.00% over the life of the |
| questions and you could be on your way to saving | | | | loan you would save $26,265 - the $3,000 you paid to |
| thousands of dollars! | | | | get the rate for a total savings of $23,265. |
| To start you should understand how and why you | | | | Now the question is "When is the right time to buy |
| would buy down the interest rate. To buy down the | | | | down the rate?" This is simple. Simply take the amount |
| rate you simply pay "points" or a percentage of the | | | | you have to pay divided by how much it saves you |
| total loan amount in order to get a lower interest rate. | | | | each month by buying down the rate and that is how |
| For example on a $300,000, 30 year fixed loan you | | | | many months until you break even with your cost to |
| may have an interest rate of 6.375%. If you paid 1 | | | | buy the rate down. If you plan on keeping the |
| point (or $3,000) to the bank you could roughly get an | | | | mortgage longer then it takes to break even then you |
| interest rate of 6.00%. While $3,000 sounds like a lot of | | | | will save money! In the example above it would take |
| money, and it is, over the long runs this could save you | | | | 44 month to break even. Everything after that is |
| thousands of dollars! Using the same example from | | | | money in YOUR pocket! |