With rising interest rates, buyers and sellers can come together for a unique win-win with a temporary rate buydown. Unlike purchasing points that lower an interest rate by a small amount (typically 0.125% – 0.5%) for the life of the loan, a temporary buydown lowers the rate much more significantly (up to 3%) at the beginning of the loan. This unique financing option can help buyers ease into the full mortgage payment and provide a unique value-add for sellers who don’t want to drop their purchase price. It can also be an answer to buyers who still want to wait until “rates drop.”
At Key Mortgage, we offer several options for a temporary buydown including: 3/2/1, 2/1 and 1/0. For a 3/2/1, the first year rate is 3% below, second year is 2% below, third year is 1% below, and the fourth-remaining term is the current market rate. Here is an example of a 3/2/1 buydown if the current market rate is 7%*:
- Year one: 4.000%*
- Year two: 5.000%*
- Year three: 6.000%*
- Year four to the end of the 30-year loan term: 7.000%*
The difference between the payment at the lower rate and at the note or market rate is what the seller provides as a closing cost credit. These funds are then held in an escrow account by the loan servicer and used to make the full payment amount each month as the borrower makes the reduced payment on the reduced rate.
Fortunately for you, your Key Mortgage loan officers have all the training, calculators and marketing you need to understand, present and market the temporary buydown option to help you win more listings, attract more buyers and put more deals together. For more information on how to work with your sellers to market a temporary buydown or to help your buyers negotiate this financing when purchasing a home, reach out to a Key Mortgage loan officer today.
*This rate scenario is an example created for educational and illustrative purposes only. Posted rates do not constitute an offer to lend. All loans are subject to credit approval. Interest rates are subject to change due to market conditions. Please contact your loan officer for current rates.
