Mortgage Rate Buydown

USE CONCESSIONS FOR A SMALLER MORTGAGE PAYMENT

A seller-funded rate buydown benefits both parties

DON’T LET TODAY’S INTEREST RATES KEEP YOU FROM BUYING A HOME

Effective 11/15/2022: We’re expanding our temporary rate buydowns to deliver even bigger savings of up to 3% for our clients.  Choose from 3-2-1, 2-1, 1-1 and 1-0 buydowns, available immediately!

Get the extra flexibility with a lower monthly payment with a Temporary Rate Buydown to lower your interest rate at the start of the loan. It’s a great option for almost any borrower, especially those who:

  • Expect an increase in their income in the next few years
  • Have excess seller concessions to use and want to take advantage of a low fixed rate
  • Are looking to do renovations, make upgrades, or buy furniture for their new home
  • Are going from renting to buying and want to ease into their mortgage with a lower payment

Choose between these seller- or lender-paid 1-, 2- and 3-year Temporary Rate Buydown options:

  • 3-2-1 buydown: A buydown of 3% in the first year, 2% in the second year, 1% in the third year, then back to the original locked rate in the fourth year for the duration of the term.
  • 2-1 buydown: A buydown of 2% in the first year and 1% in the second year, then back to the original locked rate in the third year for the duration of the term.
  • 1-1 buydown: A buydown of 1% in the first two years, then back to the original locked rate in the third year for the duration of the term. 
  • 1-0 buydown: A buydown of 1% in the first year, then back to the original locked rate in the second year for the duration of the term.

Here’s an example of the potential savings on a 3-2-1 seller-paid buydown:

3-2-1 Mortgage Rate Buydown Example

Getting concessions from a seller who wants to sell quickly?  You might be in the ideal position to use these toward a Temporary Rate Buydown to save on your interest rate at the beginning of your loan, for a more-comfortable mortgage payment. 

This 2/1 mortgage rate buydown scenario shows the potential monthly savings.

A temporary buydown allows some of the interest to be prepaid on a fix-rate mortgage in exchange for a discounted interest rate for the first two years of the mortgage, after which the interest rate reverts to the full note rate for the reminder of the loan.  This arrangement is typically paid for through funds escrowed by the seller. Since the interest rate is lower during this time, the borrower’s monthly mortgage payments are more affordable.

Temporary buydowns funded by the seller on the following loan programs:

Primary home purchase for FHA, VA, USDA and both primary and secondary home purchase for Conventional programs.

  • 3-2-1 Buydown 

    Year 1 – 3% lower than the note rate
    Year 2 – 2% lower than the note rate
    Year 3 – 1% lower than the note rate
    Year 4 - Full note rate

  • 2-1 Buydown 

    Year 1 – 2% lower than the note rate
    Year 2 – 1% lower than the note rate
    Year 3 – Full note rate

  • 1-0 Buydown

    Year 1 – 1% lower than the note rate
    Year 2 – Full note rate

Benefits to the Seller:

  • A rate buydown may help avoid price reductions
  • The cost incurred may be a tax write-off
  • It makes the home available and appearing to a wider group of homebuyers, especially in a higher rate enviroment 
  • Buyers save money and sellers net more

Benefits to the Buyer:

  • Save money up front when purchasing a home
  • If mortgage rates drop, borrowers will more than likely be able to refinance to a lower rate than the one they will adjust to after the 2 years
  • Creates monthly savings to allow the borrower to get settled in their home and be more financially flexible to purchase furniture, etc.
  • A great way for borrowers to use any excess seller concessions
  • Any unused funds will be applied as a loan principal reduction
  • Buyers save money and sellers net more

How does it work?

A 2/1 temporary buydown is a temporary reduction below note rate of two percent (2%) during the first year and a reduction below note rate of one (1%) during the second year of the loan, after which the interest rate reverts to the full note rate for the remainder of the loan.  The interest rate change from years one to two is automatic and you are not required to requalify for the loan.

For example, a $400,000 30-year loan with a standard interest rate of 5%, the buyer would be expected to pay an interest rate of 3% the first year, 4% the second year and 5% from years 3 – 30.

The buyer would save approximately $8,380 in interest, so the buyer should expect the total cost of the 2-1 buydown to be in that same ballpark.

Mortgage Rate Buydown Example

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*=This is only an estimate, provided for illustrative purposes only. Actual rates and payments may vary. It does not constitute a quote.

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