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Advanced Financing Techniques
In this section will will talk about an advanced financing technique referred to as “buying down the rate”.
In layman terms it means giving the bank more money in the trade of a lower interest rate on your loan.
Usually, you buy or purchase the rate in one quarter (1/4) increments. So if the interest rate is currently 7 % for your loan, then you can purchase or buy down the rate to 6 3/4 % or 6 1/2 %. As the interest rate drops so does your monthly payment for the loan.
Typically, the 1/4 % buy down cost is equal to 1% of the loan amount. So, as an example, if your loan was for $70,000.00 the cost would be $700.00 per unit.
Now if you wanted a 6 1/4 % rate, the cost would be 3 times $700.00 or $2100.00 , some financial institutions require this to be paid upfront at closing and some let you finance it along with your loan,depending on the size of your down payment.
We do not suggest this technique unless you intend to stay in the home for at least seven years. This equals the average break even point in using this tool.
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