Understanding Temporary Rate Buydowns
Posted by Kaitlen Conney on
What is it?
A temporary rate buydown creates an opportunity for a buyer to make lower monthly mortgage payments during the first 1-3 years. This is made possible by lowering the interest rate for that window of time. For example:
If the interest rate is currently 6.5%, the Seller could buy down the Buyer's interest rate on a new loan, say 4.5% for 24 months.
Not only does the buyer have lower monthly payments for the first 1-3 years, but they also pay less in interest over the duration of the loan.
How does it happen?
When this incentive was initially developed, the buy down was paid for by the seller, who made up the difference to the loan company. These days, many lending companies themselves are offering this option to sellers…
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