When buying a home, many buyers are faced with the decision of whether or not to buy down their interest rate. This involves paying points upfront in exchange for a lower interest rate throughout the loan. However, in today’s shifting market, it may not be the best option. Here’s why we believe that buying down the interest rate may not be necessary right now.

Current Market Conditions

Interest rates have started to slide recently, and we believe this downward trend will continue in the short term. Instead of paying extra to buy down the rate now, you may be better off waiting for rates to drop further naturally. Over the next year, we anticipate a substantial shift that could provide a much more favorable refinancing opportunity.

Why Buying Down the Rate Might Not Make Sense Right Now

Buying down an interest rate means paying additional money upfront to lower the rate for the life of the loan. While this can make sense in a stable or rising rate environment, the current market is likely to see declining rates. Instead of locking in a lower rate through costly buydowns, it may be more beneficial to hold off and refinance later when rates have dropped significantly.

Buydowns can also increase the price of a home since the additional cost of points is often rolled into the purchase price. Rather than paying extra upfront, it's more strategic to focus on lowering the price of the home as much as possible and then refinancing when the market conditions shift to your advantage.

The Cost of Buydowns

Buydowns can be expensive and, in today’s environment, they may not provide the return on investment that many buyers are hoping for. The cost of paying points upfront can range between 1% and 2% of the loan amount, which can add up quickly. Given that rates are likely to drop within the next year, it may not be worth the additional cost (Investopedia - Mortgage Points, https://www.investopedia.com/terms/m/mortgage_points.asp).

A Better Approach

Instead of buying down the interest rate, we recommend lowering the purchase price of the home as much as possible and waiting to refinance when rates drop substantially. By doing so, you can save on both the upfront cost of buying down the rate and potentially secure a better long-term rate when the market shifts (The Mortgage Reports - Rate Locking Advice, https://themortgagereports.com/80494/how-to-get-the-lowest-mortgage-rate).

Final Thoughts

In today’s market, buying down the interest rate may not be the best move. With rates trending downward and a potential for further drops in the coming months, it could be more cost-effective to wait and refinance when the market improves. Focus on negotiating a lower purchase price and keep an eye on interest rate trends for future refinancing opportunities.

We’re here to help you make informed decisions about your mortgage. If you have questions about buying down rates or want to explore your options, feel free to contact us today.

References:

1. Investopedia - Mortgage Points, https://www.investopedia.com/terms/m/mortgage_points.asp

2. The Mortgage Reports - Rate Locking Advice, https://themortgagereports.com/80494/how-to-get-the-lowest-mortgage-rate