When mortgage rates are on the rise, lenders may offer a mortgage financing technique — known as a mortgage rate buydown — that allows you to pay extra money to get a lower rate. Depending on the market many sellers are helping buyers buydown their rate in lieu of price reductions as the market starts to balance out.
What is a mortgage buydown?
A mortgage rate buydown, which is often called a “buydown mortgage” for short, is a financing arrangement that gives a borrower a lower rate for a certain number of years or for the life of the loan. The borrower pays mortgage points at closing to cover the difference between the standard rate and the lowered rate. How does a buydown mortgage work? A mortgage rate buydown can be set up in a number of ways, and the terms are negotiable from lender to lender. However, the structure will vary depending on whether you want a permanent or temporary mortgage buydown rate. How a permanent mortgage rate buydown works? You’re buying a lower rate for your entire loan term with a permanent buydown mortgage rate. The lender offers a lower rate by charging discount points. Typically, the more discounts you pay the more you can reduce your mortgage rate. The rate never increases as long as you keep your loan. Unless you take out an adjustable-rate mortgage (ARM), the rate won’t increase for the duration of your loan term. The buydown cost is paid at closing. The lender adds the cost of the mortgage rate buydown to your closing costs.
Check Out The Savings…
| Sales Price | $2,000,000 | ||
| LTV | 80% | ||
| Loan Amount | $1,600,000 | ||
| Term | 30 Years | ||
| Points % | Points $ | ||
| Prevailing Rate | 5.250% | 0% | $0 |
| Buydown Rate | 4.375% | 2% | $32,000 |
| Amortized Years | Interest Savings | Buydown $ | Total Savings |
| 5 Years | $42,549 | $32,000 | $75,549 |
| 10 Years | $85,190 | $32,000 | $117,190 |
| 15 Years | $126,000 | $32,000 | $158,000 |