Buydown to Lower Your Mortgage Rate in Nashville

A point usually costs 1% of the loan amount. The rate drop is typically about 0.25% per point. That is a quote, not a law of physics.

The CFPB describes discount points as a one-time fee at closing in exchange for a lower rate, and notes they have no fixed value in terms of how much the rate changes. You, the seller, or a builder pays that money to buy a lower payment. Permanent buydowns last the life of the loan. Temporary 2-1 and 3-2-1 buydowns step the rate back up. If you will sell or refinance before you recoup the cost, you paid for a discount you will not keep.

Permanent versus 2-1 and 3-2-1

A permanent buydown lowers the note rate for as long as you keep the loan. That is the clean version.

A 3-2-1 reduces the rate more in year one, then steps up. Example: 0.75% lower year one, 0.5% year two, 0.25% year three, then the note rate. A 2-1 is the same idea with fewer steps. Builders in Spring Hill and sellers in Brentwood sometimes offer a temporary buydown to make year one look easier. There is no balloon. You still have to afford year three. Budget the note rate, not only the teaser payment.

Breakeven is cost divided by monthly savings

Divide the cost of the points by the monthly savings. That is how many months until the upfront money is even. If you will move or refinance before that date, skip it.

Example: one point on a $400,000 loan is $4,000. The CFPB has used that same 1% math in its discount-points writeup. If the payment dropped $80 a month, breakeven is 50 months. If you might transfer in three years, you would still be in the hole. Those $80 and 50-month figures are an illustration, not a quote on your file.

A bigger down payment often beats buying points

If you must choose between a bigger down payment and points, the larger down payment usually wins. It lowers the loan amount and can skip or shrink mortgage insurance. Points only change the rate.

If cash is tight, we usually protect reserves first. A cheaper rate on a file with no emergency fund is a bad trade. Watch investment-property and cash-out files. Some of those block buydowns.

Sellers and builders can pay. Put it in the contract

The buyer pays points most of the time. Sellers and builders can pay them as a credit if the loan program allows it. Lenders may let that credit go to a buydown rather than other closing costs. Spell out who pays and whether the buydown is permanent or temporary. A verbal "we'll buy the rate down" at the model home is not a contract.

Run two columns before you write the check

One column with a normal payment. One with the buydown. Same house, same term, same cash constraints. Then look at how long you will actually keep the loan in Hendersonville, Gallatin, Franklin, or Smyrna.

A 2-1 that makes year one look cheap and year three look like a surprise is a marketing tool. If the numbers work past breakeven and the cash is not coming out of your last reserve, it can be a smart use of seller credit. If not, take the credit toward costs and keep the payment honest.

Call or text (615) 955-0461. We will run both columns. Keith Goeringer, Barrett Financial Group, NMLS #488023.