Mortgage Rate FAQs: Locks, Points and Buydowns

Your rate is driven by credit score, loan-to-value, loan program, loan amount, occupancy, property type, and the rate environment on the day you lock. Advertised rates assume a near-perfect borrower profile.

Lenders start from a base rate tied to bond market pricing, then apply adjustments. A 780 credit score with 25 percent down on a primary residence gets the base. A 660 score with 5 percent down on an investment condo gets several adjustments stacked on top.

This is why comparing advertised rates across websites is close to meaningless. The comparison that matters is two Loan Estimates for your actual scenario, on the same day, for the same program and lock period.

Most borrowers lock once they are under contract and have a closing date, because a lock has an expiration and extensions cost money. Locking earlier trades flexibility for certainty.

A rate lock guarantees pricing for a defined number of days. If your loan does not close within that window, you either pay to extend or take current market pricing — which is why locking before you have an accepted offer is usually premature.

Some lenders offer float-down options that let you capture improvement if rates fall meaningfully after you lock. Whether that option is worth its cost depends on the spread and the volatility at the time. Jim will tell you what the option costs rather than presenting it as free.

Only if you will keep the loan past the break-even point. Divide the cost of the points by the monthly savings — if you will not own the home or hold the loan that long, points lose money.

A discount point costs one percent of the loan amount and permanently lowers the rate by some fraction of a percent. The break-even is straightforward arithmetic: cost divided by monthly savings gives you the number of months to recoup.

The complication is that most people do not keep a 30-year loan for 30 years. They move, or they refinance. If your realistic horizon is five years and break-even is at seven, paying points is a loss no matter how good the lower rate looks on paper.

Break-even calculator

A temporary buydown lowers your rate for the first year or two, then it steps up to the note rate. It is funded upfront — usually by a seller or builder — and is common on Phoenix-area new construction.

In a 2-1 buydown, your rate is two percentage points below the note rate in year one, one point below in year two, and at the note rate from year three onward. The difference is prepaid into an escrow account at closing by whoever funds it.

You must qualify at the full note rate, not the reduced starting rate, which is an important protection. If the seller or builder is funding it, a buydown can be genuinely valuable. Funding one yourself is worth comparing carefully against a permanent buydown.

The interest rate determines your payment. The APR folds certain financing costs into a single annualized figure so loans can be compared on total cost, not just payment.

Two loans can have the same rate and very different costs if one carries higher fees. APR exists to expose that. A materially higher APR relative to the rate signals meaningful fees or points built into the loan.

APR is an imperfect tool — it assumes you keep the loan the full term, which most people do not — but as a quick comparison signal between two Loan Estimates it is useful.

Raise your credit score, increase your down payment past a pricing tier, shorten the term, or shop the same scenario across multiple lenders on the same day.

Credit score tiers move in defined bands, so gaining a handful of points can cross a threshold and meaningfully change pricing. Loan-to-value works the same way. A 15-year term prices below a 30-year term, though the payment is higher.

Because a broker submits your file to multiple wholesale lenders, part of that shopping happens inside the process rather than requiring you to repeat an application five times.

There is no such thing as free. In a no-closing-cost loan, the lender credits your costs in exchange for a higher rate, so you pay them through the payment instead of at the table.

This can be the right structure — particularly on a refinance you expect to replace within a few years, where paying costs upfront would never be recouped. The tradeoff is transparent once you compare a Loan Estimate with costs against one without.

What it is not is a gift. Anyone presenting it as costless is either confused or hoping you are.