Mortgage Minute

by Michael Scharfe

We had hoped we would start seeing more of a declining trend in interest rates by now. As we continue to see higher rates, you might be wondering if there is any way to get a lower rate than what is currently being offered. The answer to that question is “Yes!” This comes by way of what is called “buying down the rate.”

To buy down the rate, you would do just as the term implies: buy (or pay a fee) to get a lower rate. For instance, if the standard rate available to you at the time was 7% and you wanted to get a lower rate of, say, 6.875%, you could pay a fee of .250% of your amount financed. If your loan amount was $200,000, the .250% fee for buying down the rate would end up costing you $500.

The benefit to this is that even though you pay an upfront fee, you end up saving money in interest over the term of the loan. For a loan amount of $200,000, you would save about $6,029.05 in interest over the life of the loan, minus the $500 fee you paid upfront. This would end with a net savings of $5,529.05.

There are other options to buy down the rate if you are purchasing a home. This consists of the seller contributing funds towards buying down the rate, which saves you the fee.

Whether you are purchasing or refinancing your home, buying down the rate can offer you savings in the long run. Talk with your lender for details.

Michael Scharfe has been a lender at First Security Bank for nine years. Reach him at [email protected].