Temporary Rate Buydowns: The key to affording a purchase now!
Intense competition defined the purchase market for most of 2020 through 2022. Higher interest rates have slowed purchase demand, but they have also ushered in new opportunity for buyers: The chance to be more thoughtful in their search and to negotiate terms with peace of mind.
Higher interest rates decrease purchasing power, but fortunately, many loan programs were born of this (relatively) high interest rate environment. The most popular are referred to as temporary buydowns. These programs allow a buyer to lock in a 30-year fixed rate and use seller credits negotiated as part of their offer to subsidize their mortgage payment over the early years of the loan.
The most popular program has been a 2-1 buydown where the buyer has a 2% below market rate for year one and a 1% below market rate for year two. At the start of year three the rate adjusts to the fully locked interest rate and is fixed for the remaining life of the loan.
Below is an example of a 2-1 buydown for a $500,000 loan amount:
The loan has no pre-payment penalty and can be refinanced at any time. At the time of the refinance any unused seller credits will reduce the principal balance on the loan. Unlike paying discount points to buy down the rate, which are a sunk cost, any seller credits applied to a temporary buydown will be utilized in full!
This strategy allows you to beat the competition that will certainly return as rates come down. To learn more about Cherry Creek Mortgage’s one-year lender paid buydown program, call Lauren Nygren at 303.819.4899.
By Lauren Nygren, Senior Loan Officer, Cherry Creek Mortgage