Temporary rate buy down strategy

One of the most popular strategies for home buyers during this time of higher interest rates is to utilize a temporary rate buydown.

A temporary rate buydown is a type of mortgage arrangement where the interest rate is reduced for the first few years of the loan, often seller contributing to the cost of this reduction upfront. The most common structure involves a "2-1 buydown," where the rate is lowered by 2% in the first year and 1% in the second year, before returning to the original rate for the remainder of the loan term. This gives the homebuyers a lower rate (cheaper monthly payment) for the first two years, enough time to refinance the loan if needed to before the rate goes back to the original rate.

This temporary reduction can offer significant relief in the early years of homeownership, making monthly payments more affordable during the adjustment period. It can also provide buyers with more breathing room, especially in times of high interest rates.

Who benefits from a temporary rate buydown?

• Buyers who expect their income to rise in the near future and want to ease into higher payments.

• Sellers who want to make their homes more attractive in a competitive market by offering buyers a more affordable entry point.

• First-time homebuyers who may struggle with higher payments but still want to purchase a home now.

A temporary rate buydown can be a helpful tool for homebuyers looking to lower their initial mortgage payments, but it's essential to plan ahead for the future rate adjustments. If you’re looking for a home and curious how a rate buydown can affect your monthly payments upfront, give Craig a call.