Buy Downs: 3/1, 2/1 and even 1/1 Options!

Temporary interest rate buydowns can be the keys to a smaller mortgage payment in the first few years of your mortgage. Many lenders now offer a 3/1 buydown, but as a mortgage broker we offer three options including a 3/1, 2/1 and even 1/1 option. Here’s how it works:

3/1 OPTION: 
3% Interest Rate Reduction on year one
2% Interest Rate Reduction on year two
1% Interest Rate Reduction on year three

2/1 OPTION:
2% Interest Rate Reduction on year one
1% Interest Rate Reduction on year two

1/1 OPTION:
1% Interest Rate Reduction on year one

After the designated term your interest rate will go to the actual note rate you agreed upon at the time of your original note. So, in the 3/1 option your original note rate would start year four, the 2/1 it would start year three and the 1/1 it would start on year two. This allows you to have a much smaller mortgage payment in the first few years … giving you breathing room for things like repairs, decorating, new furniture, yard tools, or even to replenish your savings. The choice is yours.

How much does an Interest Rate Buydown cost?

The cost of the buydown varies and essentially represents the amount of interest reduction incurred by the lender. A 3/1 buydown would be more costly than a 1/1 buydown because the reduced interest period is three years vs one year. As a mortgage broker, I find it far more useful to have the various options so I can better tailor a program to meet the borrowers and sellers needs.

Where does the money for a Buydown come from?

The fee is added to your closing costs; however, we typically see them offset by Seller Concessions. It’s a great tool for realtors when it comes to negotiations. Let’s say a realtor has a motivated seller that wants the property sold quickly. Instead of lowering the sale price they can offer up to 6% seller concessions that can be used to cover the temporary buydown. This can be win-win for all.

Consider our Buydown options today and get the keys to a smaller initial mortgage payment.

Call, text or apply today, and let me deliver a loan program with the extra flexibility you need.