Source: The Ascent —
With mortgage rates hitting 20-year highs, the monthly payment for a $500,000 home is $1,000 higher than it was for the same loan a year ago. Are you looking for ways to lower your monthly mortgage payments? A mortgage buydown may be the answer.
This strategy allows you to pay a lump sum upfront in order to reduce the interest rate on your mortgage loan and save money over time. Here’s how this strategy works and how to decide if it could be right for you.
What is a mortgage buydown?
A mortgage buydown is a way of paying “mortgage points” or “discount points” to get a lower interest rate. By doing this, you lower the interest rate on your loan and get lower monthly payments.
For example, let’s say you have a 30-year fixed-rate mortgage with an interest rate of 6% on a $500,000 loan. With a buydown, one point is typically 1% of the loan amount. So paying an additional 2% upfront ($10,000) would reduce your interest rate to 5.5%. This means that instead of paying $3,300 per month for a $500,000 loan, you’d only be paying $3,100 per month. Over time, this could add up to significant savings on your total payments.
