Tuesday, June 28, 2022 / by Ameil Gill
Typically, you’ll find a 0.25% rate reduction in exchange for a point, which is often 1% of the home’s purchase price. Before you choose this option though, you’ll want to think about how long you will hold the property, along with expected appreciation.
What's the true cost of a buydown?
Breakeven Point = (Cost of Points) / (Monthly Savings)
For example, buying down a 5% rate to 4% on a $400k mortgage — a lender may charge 4 points for 1% ($16,000) with a monthly savings of $238. Using the formula above, it would take 67 payments (5 years + 7 months) to recoup the money. At the same time, would that same $16,000 perform better invested otherwise?
Keep in mind - not all mortgages qualify for buydown and you really want to think about your long-term plan.
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