Rising interest rates have revived some mortgage options, and Columbus home buyers could find them useful. One such option is the mortgage buydown. This is similar to paying “points” on a mortgage, but it’s a bit more complex.
First, the basics: paying points on a mortgage is pre-paid interest. One point is typically 1% of the amount borrowed. By paying a point, a home buyer can reduce the effective interest rate on their mortgage. The corresponding reduction in the monthly mortgage payment may be nominal, given a 30-year amortization.
With a mortgage buydown, the points are applied to a specific period. For example, there is a “3-2-1” buydown. This means the mortgage payments would be temporarily lower for the first three years. During the first year, the payments would be at their lowest; during the second year, the interest rate would go up by 1%; and during the third year, the interest rate would go up another 1%. At the fourth year, the full, locked-in interest rate would resume.
Another option is the 2-1 buydown. In this scenario, the interest rate is only reduced for the first two years of the mortgage, but the first year has a bigger discount in the payments. For example, the rate would be 2% lower during the first year, then just 1% lower the second year, and then resume the full rate by year three.
Here’s why buydowns are getting attention: if the lender allows it, sellers may pay for the buydown as a concession to the home buyer. Depending on the math and the situation, it can be more advantageous for a seller to contribute points to the buyer’s financing than to reduce the price of the home. For the home buyer, a buydown could reduce their mortgage payment more effectively than a reduction in the home price.
These are very individualized calculations, and Columbus home buyers should examine buydown options carefully. As your Exclusive Buyer’s Broker, we provide a fiduciary level of representation to you, which enables us to provide you with objective, honest advice about your mortgage options!
As Exclusive Buyer’s Brokers, we serve your best interests at all times. Unlike real estate agents and brokerages who represent sellers, as an Exclusive Buyer’s Broker, we only represent you, the buyer, getting you the best price and terms with no conflict of interest at all times.
Understanding this distinction could literally save you thousands of dollars not only on the purchase price and terms, but also on seller concessions and home inspection issues, whether you are a first-time homebuyer or an experienced homeowner!
Contact us with your home buying questions! Remember, we are with you every step of the way…all the way home!
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