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WHEN SHOULD I BUY DOWN MY INTEREST RATE?

Tuesday, June 28, 2022   /   by Ameil Gill

WHEN SHOULD I BUY DOWN MY INTEREST RATE?

All signs point to interest rates increase even further in 2022, but there are still ways you can keep your monthly payment comfortable. We went over Adjustable Rate Mortgages, but did you know that you can save quite a bit of money over the life of the loan by "buying down" your interest rate?

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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.

#realestate #realtor #realestateagent #mortgage #interestrates
REMAX Realty One Inc. - The Gill Team
Ameil Gill
50 Burnhamthorpe Road West Sussex Centre Ste #102
Mississauga, ON L5B 3C2
416-884-1359

Information is provided exclusively for consumers’ personal use and may not be used for any purpose other than to identify prospective properties consumers may be interested in purchasing. Data is deemed reliable, but is not guaranteed accurate by the MLS®.
Information is provided exclusively for consumers’ personal, non-commercial use and may not be used for any purpose other than to identify prospective properties consumers may be interested in purchasing. Data is deemed reliable, but is not guaranteed accurate by the MLS®. Copyright 2022 Last Updated August 11, 2022
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