You can pay for a lower interest rate on your mortgage upfront, but whether you should depends on the math

Business Insider | 11/6/2019 | Megan DeMatteo
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One option for homebuyers taking out a mortgage is to pay for a lower interest rate upfront, or "buy it down."

While the ability to do this, and the impact of the payment, will vary by lender, buying down your rate means paying for mortgage "points" (fees) at the start of the loan to lower your interest rate and thus decrease your monthly payments going forward.

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Should you pay for a lower interest rate? It depends. This strategy usually works best for someone who will be in the home for at least five years, because that's about how long it usually takes to break even on the upfront cost from the monthly interest savings.

Make sure to run the numbers, and to shop around for mortgage offers from different lenders to find the best rate for you.

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If you're shopping for a mortgage and not 100% satisfied with your interest rate, one option is to buy it down. "Buying down" your mortgage interest rate is a simple concept: You pay more money upfront to have a lower interest rate, and therefore pay less every month.

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You're paying for a lower interest rate by buying what's called "points," which are fees paid directly to the lender in order to eliminate some interest over the lifetime of the loan. Usually, one "point" costs 1% of your total mortgage, or $1,000 for every $100,000. You can also buy fractions of a point, like a half point or a quarter point, for a lesser impact on your monthly interest rate.

Exactly how much your upfront payments impact your interest rate going forward will vary by lender, so it's worth exploring your options to find the best rate for you.

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The impact of a lower interest rate can be huge. Run your numbers through a mortgage calculator to...
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