How Rate BUY DOWNS Can Combat Today ’ s Higher Rates
By Sherry Brady , Branch Manager , Apex Home Loans , Inc .
When interest rates were at historic lows , a typical fixed rate mortgage loan was all most people needed . Now , rates have risen and it ’ s possible they may go higher still before the Fed accomplishes their goal of getting inflation in check . Higher interest rates mean higher monthly payments , so every time the rate goes up , your buying power goes down .
There ’ s good news though ; there ’ s a new loan program that can help combat the rising rates . By using a 2 / 1 Buydown , you ’ ll get a 30-year fixed rate loan with an interest rate that ’ s discounted 2 % during the first year and 1 % the second year .
You can ease your way into a home with lower payments that simply step up at the end of the first and second year then remain fixed for the remainder of the loan . This is just one way today ’ s buyers can make buying the home they really want a reality . So , for example , if the rate you lock in at is 6.5 %, your payment would actually be calculated at 4.5 % for the first year of your loan ( 2 % below the locked rate ); then it would go to 5.5 % for the second year of your loan ( 1 % below the locked rate ), and finally in the third year of your loan , it would rise to the 6.5 % rate that you locked in at .
This also gives you a two-year time period for rates to ( hopefully ) ease back down to more affordable levels , and with a little luck , you ’ ll be able to refinance before you ever have to pay that 6.5 % rate .
A 2 / 1 Buydown is a great incentive for sellers to consider offering to buyers . If you are a seller thinking about reducing the price of your home , ask us about how you could offer a buydown instead .
The cost of the buydown option is paid for at closing by the seller or builder , so this is something that needs to be addressed in the purchase contract , but generally speaking , investing $ 5,000 - $ 10,000 into a buydown for the buyer will give more benefit to the buyer than reducing the sales price by that amount , and hopefully draw more attention to your listing , and sell your home faster !
There are additional options , such as a 1-1 or 3-2-1 buydown , and details vary according to the specific scenario . If you are a buyer or seller in this challenging market and have questions or would like to learn more , reach out , and we ’ ll be happy to help you discover what options may work for you !
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