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Should You Pay A Point to Buy Down the Rate?

Is Paying One Point (1% of the Loan Amount) to buy down the rate worth it? We think in most cases the answer is yes. The spread today between a “One Point Loan” and a “No Points Loan” is about 3/8 of a percent. In other words a conventional borrower can get 5.375% by paying a point, or he can get 5.75% if he does not pay a point. The spread is similar for FHA; today’s One Point FHA Loan is 5.5%, and the No Points FHA Loan is 5.875%, for most borrowers.

We suggest paying the point for two reasons: (1) the cost of the point will be made up with interest savings in less than three years in most cases; and (2) because rates at historical lows, we think it is unlikely that borrowers will refinance again so it is advisable to get the lowest rate possible with a rate buy-down now.

A one point buy-down is not advisable if the borrower plans to move in less than three years, of if borrower simply does not have enough funds to pay the point. But, in the latter situation, we highly recommend getting a large enough seller-credit to at least cover the point.

Jay Voorhees
Founder/Broker | JVM Lending
(855) 855-4491 | DRE# 1197176, NMLS# 310167