❇️ Buying Down the Interest Rate
When a lender quotes an interest rate, it is likely the closest rate to “par” (no cost or credit for the rate).
On most loan types, you have the ability to select a higher or lower interest rate. Choosing a lower rate comes with a cost which is usually added to your closing costs. This is why it’s known as “buying down the rate”.
💡The way we determine if it makes sense to by down the rate is to look at the cost & how long you plan to own the home.
✳️ Hypothetical Scenario:
Let’s say that you can buy down the rate 0.25% for a cost of $1,000 & that would lower your monthly payment by $30.
($1,000 / $30 = 33.33)
Therefore, it would take you 34 months (or 2yrs & 10mths) to pay yourself back that $1,000 it cost to buy down the rate. If you plan to be in the home for longer than this, it could be beneficial.
🛑Disclaimer: Everyone’s situation is different & rates/costs fluctuate constantly. The figures used in this example are hypothecate & for educational purposes only.
Be sure you choose a lender who keeps up with financial markets & understands how rates & pricing works. Locking or floating (not locking) a rate is always a gamble. There is no guarantee what will happen in our global economy from one day to the next.