New Home Interest Rate Buy Downs
Buying down your interest rate, also known as “paying points,” involves paying an upfront fee in exchange for a lower interest rate on your mortgage. It can be a good option for some borrowers, but it may not make sense for everyone.
One reason to consider buying down your interest rate is if you plan to stay in the home for a long time. The longer you plan to keep the mortgage, the more time you’ll have to recoup the upfront cost of buying down the rate. As a general rule, it takes about 3-4 years to break even on the cost of paying points, although this can vary depending on the size of the points and the interest rate you are able to secure.
Another reason to consider buying down your interest rate is if you have the cash on hand to pay the points upfront. If you can afford to pay points and still have a comfortable level of savings, it may make sense to do so in order to secure a lower interest rate and potentially save thousands of dollars in interest over the life of the mortgage.
On the other hand, if you don’t have the cash to pay points upfront or don’t plan to keep the mortgage for a long time, it may not make sense to buy down the interest rate. In these cases, it’s generally better to take the higher interest rate and avoid the upfront cost of paying points.