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When mortgage rates are on the rise, lenders may be more inclined to offer a mortgage financing technique — known as a mortgage rate buydown — that allows you to pay extra money to get a lower rate. A buydown can be permanent or temporary, and understanding the differences between the two will help you decide if it’s worth the extra expense.
What is a mortgage buydown?
A mortgage rate buydown, often called a “buydown mortgage”, is a financing arrangement that gives a borrower a lower rate for a certain number of years or for the life of the loan. The borrower pays points at closing to cover the difference between the standard rate and the lowered rate. There’s no specific limit on the number of points that someone can buy down on a mortgage. But the number of points an individual buyer may be allowed to buy down can depend on the type of mortgage and the loan terms.
How does a buydown work?
A mortgage rate buydown can be set up in several ways, and the terms are negotiable from lender to lender. However, the structure will vary depending on whether you want a permanent or temporary mortgage buydown rate.
How a temporary mortgage rate buydown works.
With this option, your rate is lower at first but eventually increases.
How a permanent mortgage rate buydown works.
You’re buying a lower rate for your entire loan term with a permanent buydown mortgage rate.
How to pay for a mortgage buydown.
There are three ways to pay for a mortgage rate buydown: You can cover the cost yourself, ask the seller to pay for it or finance it into your loan. Here’s how each option works.
Choice Mortgage Group
Choice Mortgage Group is dedicated to helping people improve their financial situations and create lasting memories through home ownership – one loan at a time. Our team of mortgage experts build customized solutions for each of our clients, based on their specific situations, goals, and objectives.
Specializing in residential mortgage lending for over 25 years, our programs include conventional and government lending, purchases, and refinances. We also offer portfolio lending for self-employed borrowers and borrowers with complicated tax situations.
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For more information about Choice Mortgage Group, visit www.choicemortgage.com.
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