If you’re looking to reduce your mortgage interest rate, you may be interested in what’s known as a buydown on your mortgage. It’s a financing strategy that allows you to reduce your mortgage interest rate by paying extra money up front.
This can make monthly payments more manageable, particularly in the early years of a loan as well as during the entire term.
There are two types of buydowns: a permanent buydown and a temporary buydown. With a permanent buydown, the interest rate is reduced for the life of the loan, lowering monthly payments throughout. In a temporary buydown, the rate is lowered for the first few years.
Although it is commonly paid for by the buyer or lender – as they will be the ones benefiting – the approach can also sometimes be paid for by the seller to make the home more affordable to buyers.
Buydown mortgages can be especially helpful when interest rates are high, as they provide an opportunity to lower borrowing costs.
However, it is important to weigh the up-front costs of purchasing points against the long-term savings: a buydown may be right for those planning to stay in their homes for several years and looking to stabilize their monthly payments, but it’s crucial to make sure these costs don’t put you in a difficult financial position from the get-go.
Are you considering a buydown on your mortgage? Call or email me today and we can discuss whether it is the right option for you.