What is a "Mortgage Rate Buydown"?

I want to talk about something today, called an "NJ mortgage rate buydown." You may be familiar with mortgage rate buydowns, or you may never have heard of them before. Basically, it is a way to further reduce an interest rate that your NJ mortgage loan officer has quoted you, by paying an extra fee. That's it, there ain't no more! Of course, I can't just end the article right there, so I'll give you some more detail about how this actually works. Let's say that your New Jersey mortgage company has quoted you an interest rate of 6%. For whatever reason, you think you can get a lower rate than that, even though 6% is still very good. You can tell your mortgage guy or gal, that you would like to pay a point on the loan, as a method of "buying down" that interest rate to, say, 5%

By doing this, your total NJ mortgage closing costs will definitely be higher, but you avoid paying that 6% interest rate! You see, if 6% was the lowest that this company
offered, paying that one point on the loan could enable them, financially, to give you that 5% rate you really wanted, which will save you likely over $100,000 over the life of your mortgage term. So basically, you are trading your "cash money", by paying a point on the loan, over a higher monthly payment. Some people choose to do it one way, others do it another way, it's really just a matter of whatever you prefer. Think of it like a subsidy. It's like socking away twelve hundred in the bank and withdrawing $100 every month for twelve months to help make your NJ mortgage payment.

You are trading one thing for another, because that was what was important to you at the time... just getting the lowest possible rate.

Another thing, aside from a mortgage buydown, is the length of your mortgage term. That in itself, is a way to "buy down" the monthly payment. Simply put, if you elect to get a shorter mortgage term in New Jersey, you generally get a lower rate as well. The reason for this is because it is seen as lower risk to the lender, even though your monthly payments will be higher. So now, I hope you have a better understanding of what a mortgage buydown is, and how you can use it to your own benefit