Buydowns Can Help Homebuyers in Rising Interest Rate Environments

Becoming a homeowner is a wonderful achievement. However, to bring the dream into reality, you’ll need an affordable home loan. A buydown provides an opportunity for you to experience homeownership with an interest rate that starts out below your actual note rate.

Lending Options

When mortgage interest rates are rising, many prospective buyers will observe economic forecasts and wait for conditions to improve. Interestingly, there’re options that might enable you to move forward with your homebuying goals.

Instead of securing a 30-year fixed-rate mortgage loan, you can consider how a short-term adjustable-rate mortgage loan or a temporary interest rate buydown fits within your goals.

Knowing how long you intend to live in your home and your comfort level with annual rate increases that respectively adjust your monthly mortgage payment are among the important things to discuss with a licensed loan officer. Take a look at our 3-2-1 Buydown Calculator.

Buying Down Your Mortgage Interest Rate

When above-average interest rates are not attractive to you, a buydown that lasts for one to three years could enable you to gradually ease toward your actual mortgage payment.

Generally, the money that’s needed to fund a buydown is placed into an escrow account by a seller or a builder.

For instance, with a 3-2-1 Buydown, your interest rate would start three percent lower in the first year, followed by a two percent reduction in the second year and a one percent reduction in the final year. Afterwards, your monthly mortgage payment would be based on the actual note rate without the seller-funded assistance for the duration of your loan term.

You and the seller can benefit from this arrangement. In many instances, where it’s not a seller’s market, it makes sense to fund a buydown that creates an opportunity for the seller to close in less time. As a preapproved buyer, you become the beneficiary of lower than proposed mortgage payments for the buydown period.

A nontraditional financing strategy could be ideal for your current situation. As market conditions change, you can explore opportunities that align with your goals.

Contact us to speak with a licensed loan officer about using seller-paid buydowns or temporary lender-paid buydowns to buy your next home.