Real Estate Expert Explains: Interest Rate Buydowns

Here’s what buyers and sellers need to know about interest rate buydowns.

Interest rates have reached historic highs, prompting both buyers and sellers to seek guidance on navigating this market. Fortunately, there are loan programs that can help: Temporary loan buydowns. These allow buyers to reduce their interest rates and monthly payments for the initial years of their mortgage. It’s also an effective marketing tool for sellers.

What exactly is a temporary interest rate buydown? The most common types of buydowns range from one to three years; for example, 2-1 buydowns are very popular in our market. That name may sound confusing, but it’s simple once you know how it works. Essentially, your rate would decrease by a certain percentage at the beginning of your loan and slowly increase as each year passes. So, for a 3-2-1 buydown, your interest rate the first year of your loan would be 3% lower. The next year, it would be 2% lower, then 1% lower, and then it would return to normal.

These buydowns offer buyers a practical solution to counteract high interest rates and ease initial financial burdens. For sellers, they present a compelling marketing strategy. An interest rate buydown holds more value for buyers compared to a price reduction or other monetary incentives.

If you have any questions or need further clarification, feel free to reach out via email, text, or phone call. I’m here to assist you in any way I can!