Interest Rate Buydowns
An interest-rate buydown is a tool to help you qualify for a larger loan and purchase a higher-priced house than you could under normal circumstances. A buydown allows you to pay extra (tax-deductible) points up front in return for a lower interest rate for the first few years. Often, people relocating for employment obtain buydowns because employers sometimes pay the extra points as part of a relocation package.
While the most common way of obtaining a buydown is by paying extra points up front, many mortgage companies now increase the note rate to cover the cost in later years.
The most common is the 2-1 buydown, which can cost 3 additional points above current market points. During the first year of the mortgage, the interest rate is reduced by 2 percent and 1 percent the second year. So if you get a 7 percent interest rate on a 30-year fixed mortgage, you’d pay 5 percent the first year, 6 percent the second year, and 7 percent for the remaining life of the loan.
Another option is the 3-2-1 buydown. This reduces the mortgage rate 3 percent the first year, 2 percent the second and 1 percent the third. Thereafter you pay the full rate.
Some programs are “flex-fixed” buydowns that increase interest at six-month intervals instead of annually.
Of course with today's low low rates you can buy a lot more house but it's good to know about other options out there in the industry. Feel free to contact me for more info on these programs or ask your current mortgage broker on what's available.
I'm Kimberly DeSocio, Your South Florida Connection to your next property with honesty, integrity and trust! Luxury Living Lifestyle In South Florida Is My Passion!