A Temporary rate buydown loan is just as it sounds. The interest is temporarily bought down using seller concessions for years 1 and 2 of the loan. Year 1 is the lowest, with rates rising in year 2 and then settling at the original market rate for year 3.
In our current rate environment, the 2-1 Buydown is a great mortgage option for buyers and sellers; here’s why:
Seller: Buydown is paid through seller concessions which are typically less than the price reduction
Seller: Cheaper for the seller than a price drop. But the buydown has a larger monthly benefit to the buyers’ mortgage payment than a price drop
Buyer: Reduced mortgage interest rate for two years and then refinance when rates are expected to be lower
Buyer: Doesn’t cost the buyer; the buydown is paid through seller concessions
Buyer: It can potentially drop the mortgage payment by hundreds of dollars per month
Example on 2-1 buydown:
Market rate is 6.25%
Buyer is qualified with 6.25 % rate
1st year rate is 4.25%
2nd year is 5.25%
3rd-30th year is 6.25%
I believe rates have turned the corner and have begun a downward trend over the next 6-9 months. The 2-1 Buydown program puts the buyer in a great position to take advantage of today’s softened prices and refinance over the next 24 months when rates are at their lowest.
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