Mortgage Rate and Points Explained

When you see a mortgage rate quote advertised, you may see two different rates, one with mortgage rate points. This is a common way to express the option before a homeowner to "buy down" a portion of a mortgage. This means you have the choice to pay a lump sum in advance against the interest you will owe for one to three years.

Reducing Mortgage Cost

There are two key advantages to this option. First, you can reduce the monthly mortgage you will pay in the first few years of home ownership. The option is usually extended in lengths lower than three years, so this benefit is temporary. Second, by paying the sum up front, you will actually receive a discount, reducing the total cost of your mortgage. The option to buy points on a mortgage is best for new home owners incurring a high expense in down payment or those who anticipate being in their home for a short period of time.

Negotiating a Buy Down

You may be able to negotiate with the seller of your property for a buy down. Homes built by construction companies may have this option attached. The seller will buy down your mortgage for you, reducing the cost of the home as well as the payments you will make in the first few years of ownership.