Asked by Jackie Perdomo on May 15, 2024
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Trystan and Kendall have decided to buy a new home that costs $300,000.They want to make a 20% down payment and finance the rest.Their bank has offered an opportunity to buy down the quoted interest rate of 4.75% by 0.125% per point purchased.Each point will cost 1% of the amount borrowed.Trystan and Kendall were hoping the interest rate was no more than 4.5% What will it cost to buy down the quoted interest rate to 4.5%?
Quoted Interest Rate
The interest rate that a lender offers to a borrower for a loan, not accounting for compounding or additional fees.
Buy Down
The process of paying additional points to a lender at closing to reduce the interest rate on a loan.
Down Payment
An initial upfront partial payment for the purchase of expensive goods or services such as a home, often expressed as a percentage of the total purchase price.
- Calculate the cost of buying down an interest rate on a mortgage loan.
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Learning Objectives
- Calculate the cost of buying down an interest rate on a mortgage loan.