Not everything falls into place at the right time. If you’re searching for a home, you may have watched with dismay as mortgage rates rose recently. Disappointing as that is, there is an option to “buy down” your mortgage that will lower your monthly payments. An additional up-front fee paid at the time you execute your mortgage will lower your mortgage interest rate.
The fee is a point system. Each “point” represents 1% of your mortgage. For a $300,000 mortgage, the point is $3,000. How to know if that math works for you? Take the difference between the two interest rates, let’s say 4.25% vs. 4.00% with one point paid. The savings for one year is $750. You just paid $3,000, one point, to lower the rate. It would take only four years before you’ve recouped that point value and begin to save.