Is a Rate Buydown a Good Play?
Is a mortgage rate buydown worth it now? Learn about the 2/1 buydown strategy for buyers and sellers and why the opportunity to refinance as rates drop makes this a smart move.
Right now... yes.
This conversation is for buyers AND sellers. The interest rate is very important to the buyer because it directly affects their payment, but it can be a tool for sellers to offer to buy down the rate for the buyer as an enticement to buy the house. I’ll tell you about an interesting play that I don’t like for every market, but one that I think can work right now. Stay tuned.
There are two ways to buy down the mortgage interest rate; permanently or temporarily. Having lived through the nightmare of buyers who had adjustable rate mortgages, I am averse to those for the most part. I like the concept of FIXED... knowing what that payment is going to be off into the future. I think that feeling is widespread. We don’t see a lot of adjustable rate mortgages since the crash.
Why now?
I'll explain why a temporary buydown might just work right now.
We are in market situation where just about everyone thinks rates are headed down. I know, we’ve been thinking this for years, right? but… well, what do you think? We just got a quarter point and I think we’ll see more over the next year.
How Does it Work?
Let me tell you about a 2/1 buydown. For about 2% of the price you can buy the rate down two full points for the first year of the mortgage. In year two the rate would tick up by a percentage point. In year three the buydown goes away. The thought here is that there SHOULD be an opportunity to refinance during that period of time as rates decline.
Do You Lose the Money if you Refi?
But wait... if you DO refinance, is that money you paid for the buydown gone? Maybe not. My lender says that money is put in a trust account and gets applied to each monthly payment. You can get the leftover money back if you refinance out of this loan product early.
If you would like an info sheet on what this looks like right now, reach out. I’ll send you a document to look over. Whether you are a buyer or a seller, I think this is something to at least consider.
Other tactics for sellers: Does a Price Change Really Help?
