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Reduce Your Home Purchase Mortgage Interest Rate

By
Real Estate Agent with HomeSmart, Evergreen Realty

Paying Points can be a good way to reduce your home purchase mortgage interest rate.

The Mortgage Professor reminds that there are opportunities on the home lending market and that one is for you to use points to pay down the loan interest rate. 

He says that during 2005, it cost about 1.5 points to buy down the rate by 0.25 percent on a 30-year fixed rate mortgage.  In 2007, it cost about 1.125 points to buy down that rate by .25 percent.  Today in January 2009, that buy down would cost about half a point. 

mortgage lendingSo if you need a $417K loan and want to buy down the rate .25 percent (example from 5 percent interest to 4.75 percent interest), the difference in buy down cost since 2005 has been reduced by $4,170. 

Sound good?

 

The lowered cost of buy down is possibly because of shorter average life of loans, which increases the value to mortgage investors who collect points up front.  And lower interest rates carry lower payments.  Mortgage investors also like that, because it reduces the chances of borrower default.

Always ask your mortgage broker to check with the lenders and find out about cost of an interest rate buy down.

See the calculator at The Mortgage Professor.  This is for borrowers who want to know whether paying
higher points to get a lower interest rate on an FRM is a good investment. 

Paying points (buying down your home mortgage loan interest rate) can yield significant return on investment (ROI) in five years ... and much more over thirty years. 

Harrison K. Long, Explore Group Properties, Coldwell Banker Previews. 

Explore Group Properties

Harrison K. Long - Realtor & Broker (Explore Group Properties, Coldwell Banker Previews, South OC): Real Estate Agent in Irvine, CA

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Comments (5)

Christine Donovan
Donovan Blatt Realty - Costa Mesa, CA
Broker/Attorney 714-319-9751 DRE01267479 - Costa M

Sometimes paying points make sense.  Sometimes they don't, but it's definitely worth looking at the possibilities.

Jan 17, 2009 05:01 PM
Brian Griffis
Realty Choice - Springfield, MO

Ditto Christine. One HAS to run the numbers to see if it makes sense.  Points are not right for everyone, and usually it is not a good investment percentage wise for people, but then there are some people who get very low interest rates on their money.  If it is just sitting anyway, that money may be better used to pay the points. 

Jan 17, 2009 05:15 PM
Harrison K. Long
HomeSmart, Evergreen Realty - Irvine, CA
REALTOR , GRI, Broker associate, Attorney

Christine ... thanks for your good comment here. Paying points is worth looking into for most home or property buyers here in California. 

Jan 18, 2009 01:58 AM
Harrison K. Long
HomeSmart, Evergreen Realty - Irvine, CA
REALTOR , GRI, Broker associate, Attorney

Brian ... thanks for your comment here, and we agree that a persona must run the numbers carefully to see if paying points makes sense. Best wishes. Harrison

Jan 18, 2009 01:59 AM
Barbara Q.
www.321ADVANTAGE.com - Harrington Park, NJ

What about the impact of Seller-Funded Buydowns?

Seller pays discount points at closing to Buydown the Buyer's interest rate for the first 2 or 3 years.

Temporary Buydowns are usually a better bang for your buck than Permanent Buydowns. Average Homeowner sells or refinances every 5-7 years - that's 60 to 84 payments, so why pay to buy-down the rate for 360 payments?

http://www.321advantage.com/sellers-calculate-your-rate

Mar 27, 2009 05:02 AM