Depending on how long you are planning on staying in your home, will determine wether buying down the rate is the right move. If it cost you $5000 to buy down the rate, and yields a $1000 per year savings in interest paid, it obviously would be ill advised to spend the $5000 if you knew you would be moving in three years.

Ask your mortgage professional or financial planner to explain the various buydown scenarios to you. If you're going to stay in your home for a significant period of time, it can actually make sense to pay points up front in return for a lower fixed interest rate.

Commonly refers to a fixed mortgage that the interest rate is lowered for a short period, usually 1 to 3 years. At the end of the term, the payment is paid at the note rate. To buy down the rate for the short term, a single payment is paid and used to supplement the borrower’s monthly payment.

Rate buy down fee - This is a fee paid to ‘buy’ your interest rate down. It is also commonly referred to a as loan discount fee.

There is not always a consistent ratio between the discount points you pay and the amount it lowers your interest rate. The first point you pay may lower your interest rate by 0.25% but the second point may lower it by more or less than 0.25%. If you are interested in buying down your interest rate, have your mortgage broker work up several options. Make sure you calculate not only the cost and monthly savings, but the break even point as well.

Interest Rate Buy Downs - The most common buy down is the 2-1 buy down. In the past, for a buyer to secure a 2-1 buy down they would pay 3 points above current market points in order to pay a below market interest rate during the first two years of the loan. At the end of the two years they would then pay the old market rate for the remaining term.