Temporary Rate buydowns:
With rates being high and monthly mortgage payments being higher than most buyers will like or tolerate there are a couple ways to get the rate down to a more manageable level.
- Permanent rate buydown: This is where we take funds upfront and permanently buy down the rate. So for example, if the rate was 7%, we could “Buydown” the rate to 6% for the life of the loan. The cost to buydown depends on what type of loan product you are using and where rates and pricing are that day.
- Temporary rate buydown: This is where we take funds upfront and buy down the rate for a temporary period. Usually either 1, 2 or 3 years. So if the rate was at 7% and we did a 3 year buydown, The first year the rate would be 4%, the second year 5%. The 3rd year it would be 6% and then it would be 7% for the life of the loan.
Both of these buydowns will reduce your mortgage payments significantly.
A couple things to note:
- If rates go down, you can refinance your loan, but you cannot recoup any of the upfront costs.
- The cost to buydown the rate varies but it can be significant. Often agents will negotiate in the contract that the seller pays this fee at closing.
This typically works for properties that have been on the market for a while as the owner is more willing to negotiate.
