February 24, 2006, Newsletter Issue #5: Buying Down Mortgage Rates
Tip of the Week
When you are shopping for mortgage rates with different lenders, you will find that many offer you the option of buying down your rate. Sometimes, a buy down can reduce your rate up to a whole percentage point. As low as current rates are, they can always be lower. A rate buy down is an easy concept.
Basically, mortgage brokers make a different amount depending on what rate they sell to you – the higher the rate, the higher the commission. Many lenders allow their brokers to substitute their commission for an up-front buy down. This way, the broker makes their commission and you get a better rate. As much as mortgage rates can vary, it is difficult to say specifically how much it currently costs to buy down a mortgage rate. The fees will vary based on the lender.
Be sure to ask about this option when you are working with a broker or lender. Usually, you can pay between .25% and 2% up front to buy your rate down between 1/8th and over a full percentage point. If you are going into your home purchase or refinance with some extra equity or cash on hand, think about buying down your mortgage rate to reduce your monthly payments.
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