Buying down an interest rate

Tailor making your own mortgage can help you leverage your mortgage to help you achieve your over-all financial goals. By buying down a fixed rate mortgage you will have the opportunity to potentially build equity faster. How will you know if buying down your rate is right for you?

Depending on how long you are planning on staying in your home, will determine wether buying down the rate is the right move. If it cost you $5000 to buy down the rate, and yields a $1000 per year savings in interest paid, it obviously would be ill advised to spend the $5000 if you knew you would be moving in three years.

Ask your mortgage professional or financial planner to explain the various buydown scenarios to you. If you're going to stay in your home for a significant period of time, it can actually make sense to pay points up front in return for a lower fixed interest rate.

Commonly refers to a fixed mortgage that the interest rate is lowered for a short period, usually 1 to 3 years. At the end of the term, the payment is paid at the note rate. To buy down the rate for the short term, a single payment is paid and used to supplement the borrower’s monthly payment.