How Buying Down Your Mortgage Rate Works

One of the many advantages to Buyers in this market is the increased ability to negotiate with Sellers on the terms of their purchase. One of these terms is the interest rate on the Buyer’s loan.

Buying down a rate can reduce the effects of recent rate increases and lower your monthly payment.

  • When you apply for a home loan you’ll be given the opportunity to buy down your rate
  • This requires paying mortgage discount points out-of-pocket at closing
  • These points are a form of prepaid interest that reduce your interest rate
  • It’s totally optional and ultimately boils down to whether you want an even lower rate

If you’re working with a bank or mortgage broker you can easily buy down your interest rate by asking for a series of different rates and associated costs.

This is known as “buying down the rate,” and is a common practice in the mortgage industry.

In short, if you pay mortgage discount points at closing,  you can bring your interest rate down to a lower level. And then save money each month via a lower mortgage payment.

For example, if the bank or broker says you qualify for a 30-year fixed at 6.50% with no points, but you want a rate of say 5.75%, you can ask them what it would cost to get the desired rate. Having the cost of the buy down in hand, you can then negotiate with the Seller to credit you that cost as part of your purchase contract.

Consider me your #1 resource for all things Real Estate! Ready to-Transition from renting to owning? Buy an investment property? Combine households? Upsize or downsize your current home? Sell inherited property? Relocate out of the area? Start a home improvement project? Let’s Talk! Just send me an email or call 619-888-2117.

Lisa Ashkins, MA – Broker Associate, DRE#01764182 – First Team Real Estate