Rate Buydown Programs... Are They a Good Idea?

May 9, 2023
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A rate buydown is a mortgage financing technique that lowers the interest rate on a mortgage for a specified period of time. The buyer or seller of the home can pay for a rate buydown. The seller may offer a rate buydown as an incentive to attract buyers, while the buyer may pay for a rate buydown to make the monthly payments more affordable.

A 2-1 rate buydown lowers the interest rate by 2 percentage points for the first year and by 1 percentage point for the second year. A 1-0 rate buydown lowers the interest rate by 1 percentage point for the first year.

Rate buydowns can be a good option for buyers who would struggle to make their mortgage payments based on current interest rates and could help potential home buyers from having to live paycheck to paycheck.

However, it's important to note that rate buydowns can be expensive. The seller or buyer may have to pay a fee to the lender to cover the cost of the buydown. Additionally, the interest rate on the mortgage will increase after the buydown period ends.

If you're considering a rate buydown, it's important to weigh the pros and cons carefully to decide if it's the right option for you. Give us a call and we can go over this together and see if it's right for you.

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