WITH MORTGAGE RATES ON THE RISE YOU MAY WANT TO CONSIDER BUYING DOWN THE RATE!
Should You Pay for a Lower Rate?
Your lender may give you the option to pay an additional fee in exchange for a lower interest rate. This loan fee is known as discount points or simply points. Though paying points increases your upfront mortgage costs, it decreases your overall interest expense for the life of the loan. Generally, one point equals one percent of your loan amount. How much each point decreases your interest rate depends on the current interest rate conditions and your lender’s terms.
To decide if it’s a smart decision to pay points, you can use a calculator to determine when you will recoup the cost of the points through your interest savings. For example, assume you’re paying $2,000 to decrease your interest rate by 0.25 percent. You would recoup the interest savings in eight years. If you plan to stay in the home longer than eight years, paying the points will save you money in the long term.