Tips to Buy Down Your Mortgage

For many home buyers, navigating through the mortgage maze can be a real challenge, particularly if you’re a first-time home buyer. Coping with difficult to understand financial terminology can add to the stress of buying a home. It is important you select a lending professional you feel comfortable with, and one you can relate to well. As your #1 Realtor Team for Mississauga, Milton, Oakville, Toronto and the GTA, we will recommend several trusted lending consultants in our area who will help you feel completely at ease all while using simply to understand terms.

Buying Down Your Mortgage – What Does It Mean?

In today’s economy, many home buyers look for the lowest possible interest rate, even if it means pulling money out of their pocket. Though most borrowers take a higher interest rate hoping to avoid paying closing costs, some savvy buyers will take the lowest possible interest rate and pay the one-time fees to save money in the long run. One option would be to “buy down” your interest rate by expressing what rate you’d like to pay, and inquiring about the cost to acquire a lower interest rate. This is called buying down the rate, and is quite common in the mortgage industry.

Continue reading to see if it makes senses for you to buy down your interest rate...

Buying Down Your Rate - An Inexact Science

While deciding whether to buy down your interest rate is fairly easy, please understand buying down a rate isn’t an exact science. Usually, as the interest rate goes lower, the cost to buy down the rate goes higher, often disproportionately. That’s why it’s important to decide on a cost threshold to determine if it makes sense to buy it down.

Don’t Fixate Over Rates!

Many home buyers may have a certain interest rate in mind that they must have. Financially speaking, it’s foolish to go after a certain rate, especially when the cost associated may eclipse the actual savings you’d accrue over time with the lower rate. That’s why it is important to compare your mortgage payment at different rates and the associated costs for buying down those rates.

Buying Down Your Mortgage – Do The Math

We recommend you do the math to figure out which rate makes the best sense to buy down to based on your goals of moving or staying at this home for the long-term. Buying down your interest rate can be a smart decision, but also a foolish one if you pick up and move after a couple of years or less in your new home. It simply isn’t worth it sometimes, especially when the price doubles to drop the interest rate a mere eighth or quarter of a point.

Your Formula For Success

If you do decide to pay points to buy down the rate, figure out the difference in the monthly payment without points versus the monthly payment with points. Divide that difference into the points charged, and the answer will tell you how many months it will take before you will break even.

Helping Buyers Make Smart Financial Decisions!

Our mission here at Team Todd C. Slater is to always help Mississauga, Milton, Oakville, Toronto and GTA buyers feel secure with the knowledge you have made a smart financial decision. If you’ve just begun your home search, we understand it’s important to maintain your privacy. Why not request our free mortgage prequalification as your first step? It will determine exactly how much home you can afford to purchase, as well as provide advice on what type of mortgage loan best suits your needs. Should you have any mortgage or other real estate questions, give me, Todd C. Slater a call today at 1-866-TODD1st (863-3178)!