Thinking of Buying Down the Interest Rate on your Mortgage?
What is a Buydown on a Mortgage?
A Mortgage Buydown presents homebuyers, sellers, and builders with an opportunity to lower monthly mortgage payments by “Buying Down the Interest Rate” on a loan.
This is accomplished by purchasing Discount Mortgage Points that are pre-paid at closing. The more Discount Points paid, the lower the monthly costs for the life of the loan.
How Interest Rate Buydowns Work
For traditional loan programs, buyers or sellers might consider Buying Down the Interest Rates on a 30-year fixed mortgage, for example, from 6.5% to 5.99%.
Each mortgage point equals 1% of the total loan, so on a $300,000 loan, one point would cost $3,000. While points don’t affect the principal balance, reducing a loan rate by even a small percentage may add up to significant savings over time.
Plus, Buydown Mortgage costs are generally tax deductible.
Mortgage Buydown Options
Those interested in scaling up to full loan payments more slowly often consider a “3/2/1” Buydown Mortgage, in which the Year 1 interest rate is lowered by 3%, in Year 2 by 2%, and in Year 3 by 1%. After that, the 30-year fixed rate takes over.
There is a similar 2-year graduated option as well, called the “2/1.”
Is a Mortgage Buydown the best solution for you?
Especially in times of high interest rates, a Buydown may work perfectly! For more information please contact K. Hovnanian® American Mortgage, LLC™ at https://www.khov.com/contact-us.
Last Updated on March 21, 2023