« « Understanding Points and Buydowns (2)

Understanding Points and Buydowns (3)

However, in a competitive market, if you shop around, you may find point discounts as high as one-quarter of 1 percent. Plus, the length of time that you want to lock in the discounted rate is an important factor; a thirty-day lock will have better terms than a sixty-day lock.

That is, you usually face two choices when you begin the loan process: You can lock in the interest rate and points you are quoted for a period of thirty to sixty days, or you can float and take whatever the market throws at you on the day you close on the house.

If you like to gamble and the interest rates are falling, this is a good way to go. But if you don’t want to take the chance of getting caught by an upward spurt in interest rates, then locking in the rate can help you sleep at night.

In short, paying points results in an interest-rate buydown and a lower payment. As mentioned, some builders factor a few points into a home’s price, so they buy down the rate and offer you a lower monthly house payment.

As a consumer, you should ask the lender or salesperson how many points are built into the price of the financing when the interest-rate you are quoted is less than par. There’s no free lunch in mortgages—points paid ‘‘on your behalf’’ are actually a cost for you.

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