Mortgage interest rates have been up, down, and up again in the past eighteen months. The best guess currently is that the rates we are seeing are here to stay for the foreseeable future. Many people are looking to buy down their rate to take some of the sting out of the monthly payments, but what does that mean, and is it always the right call?

To “buy down” your rate is to prepay your interest by offering an amount of cash at closing. Your lender may refer to this as buying down “points”. A reduction in your interest rate can lower your payment and the total amount of interest you will pay over the life of the loan. However, it can be quite expensive (thousands of dollars), and if you refinance or sell the home within a few years, you will never actually see any savings from it.

So when should you ask your lender about buying down the rate? When you have the cash, expect to keep the home and this mortgage for several years, and it’s important to you to lower your monthly payment. If you have the cash but expect to refinance or sell within three-five years, it’s best to put that cash towards the down payment and reduce your principal amount.

Questions? Thinking about buying or refinancing a home? Give us a call at 503-588-0211, option 4.