Let’s say you are looking to buy a $350,000 home with 20% down for a loan amount of $280,000.

You want a 30-year fixed mortgage, and assume the rate is 4.25%; the principal and interest payment would be $1,377.43.

If you paid a point, assume the rate would be 3.875% and the payment is $1,316.66. Does it make sense to buy down the rate?

The first step is to determine how much it costs.

One point is equal to 1% of the loan amount, which is $2,800 in this case. The next step is to determine how much you will save; you would save $60.77 per month ($1,377.43-$1,316.66).

Finally, determine how long it would take to breakeven, or to recover the cost of the point, i.e. $2,800/$60.77 = 46.07 months (or 3.84 years).

So, if you keep the mortgage for at least 3.84 years, then you will benefit from the cost of the buy down.

If you are considering what rate to choose, contact us and we can help!

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