Points on a mortgage loan are best defined as a percentage of the loan amount. Paying one point for a loan would be equal to one percent of the loan amount. This is the amount that your buyer would be paying to buy down the interest rate.
Making your buyers aware that advertised mortgage rates are predicated on the points paid will help in their decision-making when selecting a suitable loan product.
A one percent buydown is about equal to lowering the interest rate, and subsequent monthly payment, for the loan by .25%. This may sound like an insignificant amount, but it could make the difference in qualifying for the loan or not. This allows your buyers with additional up-front funds to strategically put their dollars where it benefits them the most. The amount paid for the lower interest rate will save thousands of dollars in interest over the life of the loan.
If shorter-term homeownership is anticipated, then paying additional cash for a lower rate may not make sense. A side-by-side comparison of rates will tell how long it will take for the lower buydown rate to be of benefit to your buyer.
The loan amount could also be a determining factor as to whether buying down the interest rate one to three percent makes financial sense to a borrower. A $300,000 loan would require $3,000 to $9,000 more in loan fees at closing.
Give me a call, and I will further explain the best financing choices for your buyers.