You should consider buying down your mortgage interest rate if you want to reduce your long-term interest cost. Buying points up front will reduce your interest rate and may save you a lot of money over the course of your mortgage (depending how long you keep the home). But before making this financial choice, it's essential to carefully consider several factors. Let’s take a closer look at what you should consider before buying down your interest rate in order to make sure that it is appropriate for your long-term financial goals.

Evaluate the Cost-Benefit Analysis of a Mortgage Interest Rate Buydown

The first step is to calculate a cost-benefit analysis to determine whether buying down your interest rate is financially beneficial in the long run. Your loan officer can help you do this! Here are some tips on how you can be sure that buying down your interest rate makes sense.

Upfront Costs of a Mortgage Interest Rate Buydown

In order to buy down your interest rate, you pay for the interest rate points up front. Each point typically costs 1% of the loan amount. Calculate the total cost of buying down the rate to assess its impact on your finances.

Monthly Mortgage Payment Savings

Determine the monthly savings you'll enjoy with a lower interest rate. Subtract the new monthly payment from the original payment to find the difference. Multiply this amount by the number of months you expect to keep the mortgage to see the potential savings over time.

Breakeven Point of an Interest Rate Buydown

Divide the upfront cost by the monthly savings to determine the breakeven point. If you plan to stay in the home beyond this breakeven point, buying down the rate may be financially advantageous.

Future Mortgage Interest Rate Trends

The current interest rate environment and expected future rate trends play a large role in this decision. If interest rates are already historically low or are expected to decrease further, it may not be necessary to buy down the rate. However, if rates are high or expected to rise, buying down the rate could be advantageous.

Consult with a Mortgage Professional

Seeking guidance from a mortgage professional who can provide personalized advice based on your financial situation is the most important step of the home-buying process. They can help you understand the potential savings, evaluate the costs, and analyze the long-term impact of buying down your interest rate. A loan officer can also explain the current market conditions and help you make the most informed decision.

For over 90 years the experts at Standard Mortgage (NMLS#:44912) have been helping home buyers and homeowners with all of their mortgage needs.