Hot Topic: Interest Rate Buydown
Recently, mortgage interest rates hit 8%. The interest rate directly impacts your monthly mortgage payment, which in turn will determine your total qualifying mortgage amount and your home purchase price.
There are strategies and programs available to lower the interest rate to alleviate some of this sticker shock. One option is a “buydown”. According to Investopedia, a rate buydown reduces the mortgage interest rate, either temporarily for a few years or even over the life of the loan.
There are several types of buydowns. Amanda Gilbert, mortgage advisor at Steadfast Mortgage, recently held a class on the options, and Living True was there to get the details.
Here’s the scoop on 3 types of buydowns:
Permanent Buydown
This type of discount lowers the rate over the entirety of the loan.
It can be paid for by either the seller or the buyer.
Pro Tip: Figure out the difference in an upfront buydown expense vs. savings per month and the break-even point. Your lender will help with this.
2-1 Buydown
This type reduces the interest rate for the first 2 years of the loan, with a deeper discount in the first year.
This must be paid by the seller and will cost roughly 1.5%-2% of the loan amount.
Lender-Paid 1 Year Buydown
Some lenders are advertising that they will pay for a 1-year buydown of your interest rate.
With all things in life, read the fine print and ask questions! With this type of “discount”, you will likely see a dramatic increase in the interest rate in Year 2.
Curious how a rate buydown would affect your purchasing power? Let’s chat and connect you with Amanda!