Interest Rate Buydowns
What is an interest rate buydown?
A buydown is a financing technique that allows borrowers to temporarily lower the interest rate on the mortgage for the first several years.
How long can the rate be reduced for?
We offer a 2/1 buydown. These numbers represent how much the interest rate is reduced over which year. For example, the 2/1 buydown would reduce the interest rate by 2% in the first year, 1% in the second year, and the remaining years on the loan would be at the original interest rate (or note rate).
How much does it cost to do a buydown?
The cost is calculated by adding up the monthly difference in mortgage payments between the reduced interest rate compared to the note rate. Please see table below for an illustrated example of the 2/1 buydown assuming at 30yr fixed at 6.625% with a $294,405.00 loan amount:
| Interest Rate | Monthly Payment | Payment Difference | Annual Cost | |
|---|---|---|---|---|
| Note Rate | 6.625% | $1,885.11 | - | - |
| Year 1 | 4.625% | $1,513.65 | $371.46 | $4,457.46 |
| Year 2 | 5.625% | $1,694.76 | $190.35 | $2,284.15 |
| Total Cost | - | - | - | $6,741.62 |
Other frequently asked questions about buydowns
No, we can do interest rate buydowns on both purchase and construction loans.
The buydown period begins once the house is finished and the construction loan modifies to the end mortgage.
Buydowns can be paid for by the seller, builder, or other interested parties. This can be viewed as another type of concession and rather than paying for closing costs, it helps the borrowers with a reduced rate for a temporary time.
Yes, there are program guidelines on how much in concessions are allowed so it’s best to check with us for eligibility.
No, they can refinance the loan during the temporary buydown period.
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