After years of dormancy, with interest rates remaining stubbornly high, the temporary buydown has resurfaced as a useful tool to make the first two or three years of a mortgage more affordable. Optimally, a temporary buydown provides borrowers with lower payments until they can refinance to a permanently lower rate without the risks of an adjustable-rate mortgage (ARM).
The most common temporary buydown is a 2-1 Buydown. In a 2-1 Buydown, borrowers lock in their rate at current market prices and then pay a fee that allows them to make payments at 2 percent below the locked rate for the first year and one percent below the locked rate for the second year. For instance, if the locked rate is 7%, the rate the first year will be 5%, the second year will be 6% and years 3-30 will be at 7%. Ideally, the buydown fee is negotiated in the contract to be paid by the seller, although the borrower can pay for some or all of the fee themselves.
There are also 1 year and 3-2-1 temporary buydowns available, which reduce the rate for 1 or 3 years respectively. Understanding the mechanism and details of a temporary buydown requires some clear explanation from an experienced mortgage professional. Once understood, however, a temporary buydown may be the perfect way to navigate our current higher rate environment with little risk and hopefully stem the tide to lower rates in the next 12-24 months.
For more information please contact Josh Kagan at Group Mortgage. Call 970-879-0996 or visit: https://www.houseloan.com/joshkagan/prequalify.html