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Lower Your Interest Rate During The First Couple Of Months With A Buydown

December 28, 2022 by Jim Potts

Lower Your Interest Rate During The First Couple Of Months With A BuydownIf you are thinking about purchasing a house today, you have probably realized that mortgage rates have increased significantly. This has made it much harder for people to afford home loans, and these higher rates have had an impact on the lender’s business as well. In an effort to make it easier for people to afford a home, you might be able to access something called a buy-down loan or a buy-down mortgage. It could help you save a significant amount of money during the first few months or years of your loan.

How A Buydown Mortgage Works

If you decide to go with a buydown mortgage, your interest rate will be lower for a temporary period of time. For example, it might be two percent lower for the first year, 1.5 percent lower for the second year, and then one percent lower for the third year. It will normalize for the rest of the loan. Because the interest rate is lower, your monthly payments will be smaller for the first few years. This could be an attractive option for a buyer who expects his or her income to go up in the future. Or, this option could be provided by a custom home builder to get more people through the door. 

Who Funds The Buydown Account?

There are different ways a buydown account might be funded. It could be provided by a home builder, or it might be provided by the seller if you are purchasing the house from somebody else. It might even be offered by a mortgage lender that is having a difficult time getting people to sign mortgages. Depending on the current interest rates, there are different options available. For example, some buydowns give you a one percent break for two years, while others might start with a three percent break the first year, dropping by one percent each year until it normalizes.

Is A Buydown Mortgage Right For You?

Like any option, there are pros and cons. If you lower your monthly rate during the first few years, it is possible that the rest of your mortgage might have higher payments than it would otherwise have had. Be sure to talk to a professional who can help you figure out if this is the right option for your needs. 

Jim Potts

Filed Under: Loan Tips Reno Tagged With: Buydown, Mortgage, Points

Jim Potts

Jim Potts


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