Mortgage rates are going up. In fact, experts are predicting rates could go up two-three times in 2017. So, if you’re thinking of buying a North Scottsdale home for sale, you might be wondering if you can still afford the monthly payments. You should still be able to if you lower the interest rate. You can do this by buying down the rate.
Basically, buying down the rate is the same as paying points. That means in addition to standard loan fees like appraisal and underwriting, you’re paying an extra fee on top of that.
Of course, that means when buying a North Scottsdale home for sale you’ll have to put up more cash upfront. If you want to pay a point, that is one percent of the loan amount. So, on a $500,000 mortgage, 1 point would be $5,000. Lenders will lower your interest rate at closing if you pay that point or at the start of the loan.
On a 30-year fixed loan, you might find yourself with two options with and without points. Julian Hebron is the executive vice president of sales and marketing at RPM Mortgage. He uses an example of a 30-year fixed mortgage of $325,000. “Today the option with zero points might show the rate as 4.25 percent, and the option with 1 percent in points — equal to $3,250 — might show the rate as 4 percent," said Hebron. "Paying $3,250 at closing to lower your rate by .25 percent lowers your payment $42 per month, and lowers your interest cost $68 per month."
When buying a North Scottsdale home for sale, how do you know if you should buy down the mortgage? It basically comes own to timing. How long do you plan to be in the home? What will be the savings? Matt Weaver, vice president of sales at Finance of America Mortgage, says you take the dollar value of the buy down and divide it by the monthly savings from the lower interest rate. After that, you divide the figure by 12 months. In one example, he says it could take over five years to recoup the cost of the buy down. If you don’t plan to stay in your home that long, then it’s probably not worth it.
Like with anything, buying down a mortgage on a North Scottsdale home for sale does carry some risk. For one, if you’re not sure how long you’re going to stay in the house coupled with the possibility of needing the cash for unexpected expenses down-the-road. Weaver recommends the buy-down strategy if you plan to be in your home seven years or longer.
If you don’t see yourself staying in the North Scottsdale home for sale for more than seven years, you might want to consider an adjustable-rate mortgage (ARM). You’ll get a much lower interest rate and it can be fixed for at least five years.
Keep in mind, the benefits can vary from lender to lender. It’s best to shop around for the best rate. Buying down the interest rate isn’t for everyone. Weigh the pros and cons. That includes estimating how long you plan to stay in the North Scottsdale home for sale and determining if you’ll need the extra cash down-the-road.