The Secret Hack to Lower Mortgage Rates

Blog posted On December 01, 2022

It would be hard to get a mortgage rate in the range we saw during the pandemic. But what if you could get something low by today’s standards? More and more buyers are taking advantage of programs that can help them save hundreds per month on their mortgage payment. In fact, sellers can benefit from these programs too.

Types of Payment Buydown Programs

Temporary Mortgage Payment Buydown

A temporary payment buydown can help a buyer get a lower mortgage payment for up to three years. After the buydown period is over, the monthly payment will return to its original level. The number of years in the buydown period will determine the size of the payment reduction.

3-2-1 buydown (3-year buydown period)

• • • Year 1 – mortgage payment based on interest rate that is 3% lower
    • Year 2 – mortgage payment based on interest rate that is 2% lower
    • Year 3 – mortgage payment based on interest rate that is 1% lower
    • Years 4-30 – back to original rate (fixed or adjustable)

Right now, experts say that the 2-1 buydown is the most popular. In this case, the payment would be based on an interest rate 2% lower than its initial level. Year two would be 1% lower

Our Mortgage Payment Buydown is available for various loan types:

• FHA
• Conventional
• Fixed-rate mortgage
• Adjustable-rate mortgage (ARM)

1. Permanent (Discount Points)

Permanent rate buydowns are most commonly known as ‘discount points.’ They essentially work the same way as temporary buydowns – both are paid upfront to cover the cost of lowering the interest rate. The obvious difference is that discount points secure a lower rate for the duration of your loan term as opposed to three years. Typically, one discount point is between 0.125% to 0.50% of the mortgage rate. The cost per point varies but it generally is 0.375% to 1% of the total loan balance.

Permanent buydowns can be beneficial for different reasons than temporary buydowns. With temporary buydowns, the buyer hast to qualify for the loan based on what it would look like after the buydown period is over. Permanent buydowns could make it easier for a buyer to qualify since it ensures the rate and payment will stay lower for the entire loan term.

How to Negotiate a Rate Buydown

1. Talk to your lender

If you want a lower interest rate on your mortgage, the first place to start is with your lender. Reach out and let your loan officer know that you’re interested in discount points or our Temporary Mortgage Payment Buydown, and we will be able to guide you further. Depending on which buydown program you choose, there may be certain restrictions on who can pay the upfront buydown fee.

2. Talk to your real estate agent

Next, let your real estate agent know you’re looking into buydowns to increase your affordability in this market. Unless the listing agent/seller is offering discounts upfront, it’s likely your agent will need to do some negotiating and propose a seller concession.

Benefits for Both Buyer and Seller

Rate buydowns have obvious benefits for home buyers. But they also can be hugely beneficial for sellers too. Not only can it help you sell faster, but in certain situations, it could also help you walk out with a higher profit than reducing your home price. Money.com contributor Aly J. Yale explains a real-life scenario where it saved the sellers $15,000.

“In this case, the seller agreed to a $15,000 buydown, which reduced the buyer’s rate by a full percentage point and her monthly payment by $341 for the entire loan term. Had the buyer simply offered less for the house, it would’ve meant a $30,000 price cut to achieve those kinds of monthly savings.”

It's not a secret: buyers and sellers are reaping the benefits of Mortgage Payment Buydowns and discount points. If you’re interested in learning more about these programs, let us know.

Source: Money