Down Payment or Rate Buydown? How to Use an Extra $50K in Santa Barbara

You have an extra $50,000. Should it go toward a bigger down payment, or toward buying down your interest rate? Here is a Santa Barbara example, with real math.

The setup

A $1,500,000 home with 20% down ($300,000) means a $1,200,000 loan. At 7.875%, the principal and interest payment is about $8,701 per month.

Option A: put the $50K toward the down payment

Your loan drops to $1,150,000. The payment becomes about $8,338 per month. That saves about $363 per month.

Option B: use the $50K to buy down the rate

In this example the $50K buys the rate down to about 6.83%. The payment becomes about $7,847 per month. That saves about $854 per month.

The break-even

$50,000 divided by $854 is about 59 months, or roughly 5 years. If you expect to keep the loan longer than that, the buydown comes out ahead. If you may sell or refinance sooner, the larger down payment may fit better.

Takeaways

• Run both numbers before you decide. The best answer depends on how long you will hold the loan.
• Rates, points pricing and loan terms vary by lender and borrower. Ask for a written quote on each option.

Questions about buying in Santa Barbara? Call or text Justin Etherton at 805-323-9323. Instagram: @justtheetherton

Justin Etherton | Etherton Real Estate Group | Powered by eXp Realty | DRE# 01906052

Example only. Not a loan offer or financial advice. Figures are principal and interest only and exclude taxes, insurance and fees. The 6.83% rate is an illustrative assumption. Consult a licensed lender.