Buy-Down Rate Calculator
A Buy Down Rate Calculator helps homebuyers and real estate investors determine how much they can reduce their mortgage interest rate by paying discount points upfront. This is especially useful for long-term mortgage savings and helps in financial planning when purchasing a home.
Formula
The buy-down rate is calculated using the following formula:
BDR = CD ÷ S × 100
Where:
- BDR = Buy Down Rate (%)
- CD = Cost of Discount Points (amount paid to lower the interest rate)
- S = Loan Savings (total savings over the loan term due to the lower rate)
How to Use
- Enter the Cost of Discount Points (CD) – Input the total amount paid for discount points.
- Enter the Loan Savings (S) – Enter the total interest savings due to the rate reduction.
- Click “Calculate” – The tool will compute the buy-down rate (BDR) in percentage.
Example
A borrower pays $5,000 in discount points to lower their mortgage rate, resulting in a total savings of $25,000 over the loan term.
Using the formula:
BDR = (5,000 ÷ 25,000) × 100
BDR = 20%
So, the buy-down rate is 20%.
FAQs
- What is a buy-down rate?
A buy-down rate is the percentage reduction in interest rate achieved by paying discount points. - How do discount points work?
Each discount point typically costs 1% of the loan amount and reduces the interest rate. - Is buying down a mortgage rate worth it?
It depends on how long you plan to stay in the home. If you keep the loan long enough to recoup the cost in savings, it can be beneficial. - How much can I save with a buy-down?
The savings depend on loan amount, term, interest rate, and discount points paid. - Do all lenders offer rate buy-downs?
No, buy-down options vary by lender. It’s best to check with your mortgage provider. - Can I buy down my rate after closing?
Generally, no. Buy-downs are usually made upfront during loan origination. - Are discount points tax-deductible?
In many cases, yes. Discount points may be deductible as mortgage interest, but check IRS guidelines or consult a tax advisor. - How does a temporary buy-down differ from a permanent buy-down?
A temporary buy-down lowers the rate for a few years, while a permanent buy-down applies for the entire loan term. - Can I finance discount points into my loan?
Sometimes, but it increases the total loan balance and monthly payments. - How many discount points can I buy?
It depends on the lender, but most allow 1 to 3 points to be purchased. - Does buying down my rate affect my credit score?
No, but taking out a mortgage does impact your credit score. - Are buy-downs allowed on all loan types?
Most conventional, FHA, and VA loans allow rate buy-downs, but terms vary. - What is the break-even point for a buy-down?
The break-even point is when your interest savings equal the cost of discount points paid. - Can a seller pay for a rate buy-down?
Yes, in some cases, sellers or builders may offer seller-paid rate buy-downs. - What’s the difference between a buy-down and a refinance?
A buy-down reduces your rate at the start of a loan, while refinancing replaces your loan with a new one at a lower rate. - Is a buy-down better for fixed or adjustable-rate mortgages?
It’s more common in fixed-rate mortgages, but some adjustable-rate mortgages (ARMs) allow it too. - Does a buy-down make sense for investment properties?
It depends on your investment strategy. Lower rates reduce monthly payments, improving cash flow. - Can I negotiate discount points with my lender?
Yes, some lenders allow negotiation based on creditworthiness and loan terms. - Do rate buy-downs apply to jumbo loans?
Yes, but jumbo loans often have different buy-down structures. - What happens if I sell my home early?
If you sell before reaching your break-even point, you may lose money on the buy-down investment.
Conclusion
A Buy Down Rate Calculator helps homebuyers and real estate investors determine whether paying discount points for a lower interest rate is financially beneficial. By using this tool, borrowers can assess long-term savings, calculate break-even points, and make informed mortgage decisions.