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Maureen Fran…, Real Estate Pro in Birmingham, MI

Should a buyer pay to down my rate with points?

Asked by Maureen Francis, Birmingham, MI Fri May 18, 2007

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Rhonda is correct; it's just a math equation. Let's use a $300,000 loan for example, 10 year interest-only loan. No points, no origination fee at 6.25%. Payment= $1562. Pay a point to get it to 5.875% ($3000) and you reduce the payment to $1469, a savings of $93/month. Now, divide the cost ($3000) by the savings ($93) for your monthly breakeven=33 months.
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4 votes Thank Flag Link Fri May 18, 2007
There are a couple of factors to consider, such as how long the buyer plans on keeping their home and do they tend to refinance often. If they're not going to retain the mortgage long enough to break even on the cost of the point(s), then they may consider having the mortgage priced without a point. The choice is theirs. To read more about this, click the link below.
3 votes Thank Flag Link Sat May 19, 2007
In many cases, Yes. It depends on how long you plan on owning the property your purchasing. If your only gonna have it a few years or thats your goal, then you may not want to pay the points. Ask your lender how long it will take to recoup your initial payment on the points. Typically, its a few years per point. Hope this helps.
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3 votes Thank Flag Link Fri May 18, 2007
think this is a great way for sellers to generate interest for buyers. If a seller on a $800,000 property offers to buy down the interest rate for a buyer it will save the buyer on his monthly payment and may be a lot less expensive then a price reduction.
1 vote Thank Flag Link Sun May 20, 2007
Kaye Thomas, Real Estate Pro in 90266
As a commercial mortgage lender, we often work with borrowers that require a specific loan amount. In that event, lowering the rate will increase the loan amount that the desired property will qualify for.
The methodology for commercial loan underwriting is different than for residential. The building will have a net operating income, and that netoperating income must service the principal and interest expense of the desired loan at least 1.2X. By lowering the rate, you then lower the principal and interest, which will allow for a greater loan amount.


Michael Haltman, President
Commercial Capital Alliance/Exeter Commercial LLC
131 Jericho Turnpike, Suite 202
Jericho, New York 11753
516.741.8880 (O)
516.741.6838 (F)
0 votes Thank Flag Link Tue Jul 31, 2007
It may make sense if the buyer plans to be in the property for longer than the breakeven period (see Brian's post).

Another time it makes sense is from an underwriting perspective - most bank underwriters will enter a "maximum qualification rate" into the loan file. This means that the borrower cannot have a final rate higher than this rate. In certain circumstances, it may be necessary to "buy down" the rate to get below the max. qual rate.
0 votes Thank Flag Link Sun Jul 29, 2007
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