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Profile picture for PukonYukon

why bother buy down points? why not just save money, clean credit and refinance in 2 years?

what value does buying down points bring- aren't you just prepaying the interest in the buy down?

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April 30 2011 - Oklahoma City
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Answers (4)

Imelda is right on!

If you won't be staying in the home very long, than buying down will cost you, rather than save you.  However, if you know that you for a fact will live in the home for the life of the loan and that interest rates will rise and you have money in the bank than a buy down might may sense.  But even if all that is true, WHY not: Not buying down BUT pay more money towards your principal each month and pay the note off early. 

Whatever you choose, I wish you luck!
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April 30 2011
Profile picture for Pasadenan
Buying down the rates by the seller are an entirely different thing.  That is just loan pre-payments for 1 to 3 years.  They are essentially worthless and try to get people into homes they can't afford.

It is much more practical to offer that much less off of list price.
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April 30 2011
It has been a while since I last think of buydowns, inaddition to what Pasadenan mention, I vaguely recall the following:

Some sellers/buyers use that to increase leverage capacity, so that they can qualify for a bigger loan or to qualify for the same targeted loan that their current credit score, obligations and income could not.

The source of the buydown funds can be created legally.

It is also a nice way for one to help a family member, if sourced early enough.

Not sure if what I recall is still valid anymore, as it has been a while (more than 5-8 years).
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April 30 2011
Profile picture for Pasadenan
You don't want to gamble on future interest rates for a refinance.  You want to clean your credit up first to qualify for a 4.5% fixed 30 year interest rate presently available.  Then, if you are "staying", you want to buy down points to lower your total life-cycle costs.  If you are not staying, buying down points is foolish.

1/8% reduction in rate costs about 1% of the total amount borrowed.  So, if your rate without buying points is 4.5%, and you don't do accelerated payments, your break-even point for the extra 1% upfront is 11 years, 3 months.

So, say you financed that 1% at 4.375%... That extra 1% up front would still have saved you about 0.87% over the life of the loan.

And people don't get fixed rates if they think rates are going to be dropping in the future; they get fixed rates to avoid the surprise of future rate changes.
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April 30 2011
 
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