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Should I buy down my Mortgage Rate?

Interest rates are constantly in flux. In fact, the interest rates will likely change between the time you start your mortgage application and the time you are approved.

Locking the interest rate does not become in effect until you have property and contract.
First you need to understand how mortgage rates are priced.

1. The longer out you lock a rate the higher the rate. You will have a higher rate if you lock for 45 days out vs. 30 days out. Make sure if you lock on a 30 day you can close by that time otherwise the rate will have to be extended and additional fees apply.

2. Most buyers should be asking what current rates are WITHOUT any points. This means you don’t want to pay anything to get that rate and you are not buying down the rate. It is also known as PAR pricing.

3. You may decide to buy down the rate to get a lower rate. Have your lender run a good faith estimate for you both ways (buying the rate down and not buying the rate down). Although a lower rate always sounds more appealing it is not always the best option.

4. You need to decide how long you plan to stay in the new residence. For example, if you plan to stay in the new property a maximum of 5 years then it may not be worth buying the interest rate lower. You may not recoup the expense of buying the rate lower.

5. Ask if you lender has a float down option. This means you can lock and if rates go lower do you have an option to get a lower rate prior to closing. Most of these options require an charge up front and some are refundable and some are not. Ask questions.

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