#1. Buydowns
This Playbook Series is designed to explain several mortgage programs available today as well as some hacks to help those with current mortgages pay less over time.
There are a few common buydown products that clients can take advantage of, including an Interest Rate buydown, 3-2-1 buydown and a 2-1 buydown. While the following examples reference sellers paying for the buydowns specifically, buyers or lenders can also pay for interest rate buydowns.
How it Works
A rate buydown is a way to pay for a lower interest rate by purchasing discount or mortgage points.
Value to Clients
Buydowns can be a benefit to both buyers and sellers. Sellers get a competitive advantage and buyers get to make a one-time payment to reduce their interest rate for the length of the loan.
A common misconception is that 1% = 1 point. In reality, approximately 1 point = 0.25% of the mortgage rate. Buying down the rate by 1 point costs 1% of the loan amount.
Here is how the math works on a 30-year mortgage
*Not including taxes, insurance, or private mortgage insurance (PMI). Figures are rounded to the nearest whole dollar.**Can be paid by buyer, seller or lender.
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