Home Owner
How Do Buying Points Work?

The term has likely come up as you are researching the homebuying process.

I’m sure at some point the term "buying points" has come up as you are researching the homebuying process.

Simply put – Buying Points are money you can pay in exchange for a lower interest rate.

Every interest rate has a price attached to it. Par pricing (often seen as 100.00 on a rate sheet) refers to the point in which the interest rate does not cost you more and you are not getting a credit towards your closing costs.

Anything above 100.00 would give you a credit, anything below would require you to pay the additional cost to get that interest rate.

For example:

Based on a $400,000 Loan amount…

4.125% - 100.125 price - .125% Credit towards closing costs = $500
4%  100.00 Par Pricing

3.875% - 99.625 price - .375% Cost for interest rate chosen = $1500

It is very important to analyze the break-even point when looking at buying down the rate. The typical lifespan of a mortgage is 5-7 years, so if you are outside of that in your break-even equation (Cost/Monthly Savings = Months to Break-even) it may not be worth the additional costs.

Every situation is different, however, so make sure to discuss all options with your loan officer.