A couple of weeks ago I did a social media post about temporary rate buydowns which was a great overview, but there is only so much you can cover in a signal post. While it’s a helpful tidbit of information, it only scratches the surface. And with the way interest rates are currently, temporary rate buydowns are pretty common. It’s important to know what they are and how they can benefit you, especially in this market. As the owner of Edge Mortgage Inc., I’ve always emphasized the importance of understanding every aspect of your mortgage to make informed decisions. That’s why it’s important to dive into mortgage topics like this to be sure you’re making the best choices for yourself and your unique situation.
Understanding Mortgage Rate Buydown
A mortgage rate buydown is a strategy that is usually paid for by concession from the seller or builder where they pay an upfront fee to secure a lower interest rate for your mortgage. Sometimes, the seller offers a rate buydown as an incentive to the buyer. This process is known as “buying down the rate.” Essentially, you pay mortgage points – each point is typically 1 percent of your mortgage amount. For instance, 1 point would be $1,000 for every $100,000 of your mortgage. This strategy can lead to significant savings over the life of the loan. The loan servicer draws from the account every month to make up the difference between the full loan payment and the discounted amount you are paying. If you refinance before the term is up, the amount left in your account should be given back as a principal reduction.
There are mainly two types of buydowns:
- Temporary Buydowns: These often involve a structure where the interest rate is reduced for the first few years of the mortgage. Common formats include the 3-2-1 buydown (where the rate decreases annually for three years) and the 2-1 buydown (decreasing over two years).
- Permanent Buydowns: In this case, the interest rate is reduced for the entire length of the mortgage. The borrower pays points upfront to permanently lower the rate. This is more costly upfront but can offer long-term savings.
Both types of buydowns can be effective ways to reduce monthly mortgage payments, though the best choice depends on individual financial situations, how long you plan to stay in the home, and the availability of funds for upfront costs.
Let’s look at an example:
The most common is a 2/1 buydown. Let’s say a borrower gets a mortgage with a 7% rate.
- Months 1-12 – The interest rate would be 5%
- Months 13-24 – The interest rate would be 6%
- Months 25+ – The interest rate would be 7%
Benefits of a Mortgage Rate Buydown
- Lower Monthly Payments: By reducing your interest rate, your monthly mortgage payments become more affordable. This can be particularly beneficial if you’re on a fixed income or budget.
- Long-Term Savings: Although there’s an upfront cost if you do the buydown yourself, the long-term savings on interest can be substantial, especially if you plan to stay in your home for many years. But if it’s given as an incentive from the seller, it doesn’t require more money out of your pocket.
- Tax Deductions: Mortgage points are often tax-deductible, which can provide additional financial benefits.
Why Choose Edge Mortgage Inc. for Your Buydown?
At Edge Mortgage Inc., we stand out for our commitment to personalized service and transparency. We understand that every client is unique, which is why we work closely with you to find the loan that best suits your needs. Our goal is to simplify the mortgage process, replacing costly and complex procedures with high-quality customer service. We ensure that there are no hidden fees or charges, offering you the lowest interest rate possible.
Is a Mortgage Rate Buydown Right for You?
Deciding whether a mortgage rate buydown is suitable for your situation depends on several factors, including your financial stability, how long you plan to stay in your home, and your available funds for upfront costs. At Edge Mortgage Inc., we’re here to help you navigate these decisions. We provide skilled, professional, and considerate service, ensuring that getting your loan is a successful and positive experience.
Edge Mortgage Inc. is Your Trusted Mortgage Rate Buydown Expert
Picking the right mortgage broker is one of the most important decisions when it comes to buying a home. Who you go with could mean a big difference in the amount of money you pay. Unfortunately, there are big banks and brokers who are mostly worried about getting their incentives or their bottom dollar. This is not who we are. We worry about the client first and work hard to get you the very best loan with the best rate. We’re not just here to get you a loan; we’re here to build a relationship and support your dreams. If you’re ready to take the first step or just have more questions, we are ready to help. At Edge Mortgage Inc. we are committed to removing costly and difficult processes and replacing them with high-quality customer service. We will be there on your home-buying journey every step of the way.
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Edge Mortgage Inc. Makes Home-Buying Dreams Come True in Colorado, Wyoming, Nebraska, and Ohio
Edge Mortgage Inc. is located in Johnstown, Colorado, and serves all of Colorado, Wyoming, and Nebraska, and Ohio. We offer the loan process made simple and top-notch customer service. We are your trusted Mortgage Lender and the top mortgage specialist in Greeley, CO, and every state we serve! Call us today at 970-744-0000.
You may also be interested in Wyoming Mortgage Broker: What We Do and How We Can Help.