The Mortgage Payment Buydown: The Secret Hack to Rising Mortgage Rates

Blog posted On June 23, 2022

Mortgage rates are trending higher, which will ultimately help stabilize the housing market in the long run. But that doesn’t make it any easier on your wallet right now. While a listing price reduction might help lower your monthly mortgage payments minimally, our Mortgage Payment Buydown Program can help you save more. 

Program Overview

The Mortgage Payment Buydown gives home buyers a lower monthly mortgage payment for up to three years. After the buydown period is over, the mortgage payment will return to its initial level and continue the rest of the term as a fixed rate. The goal of the program is to help home buyers over the hurdle of higher interest rates, which increase monthly mortgage payments, so that they can start building equity now instead of waiting for rates to fall. Oftentimes, the benefits of a payment buydown outweigh a listing price reduction. 

How it Works

1. A cost of the prepaid interest is paid at closing.
2. This bases the monthly mortgage payment on a rate that is 1%, 2%, or 3% lower than the note rate. 
3. The buydown period will last for up to three years.
4. After the buydown period is over, the mortgage payment will return to its original level and continue as a fixed rate.

Example Scenario

Who Can Pay for the Buydown?

• Builders – Rather than incentivizing buyers with upgrades like granite countertops, the builder can offer to pay some or all of the cost of the prepaid interest.
• Sellers – The prepaid interest can be a form of a seller concession to sway buyers in a competitive market.
• Buyers – Buyers can also pay their own prepaid interest. Sometimes they can shift some of their down payment toward the fee.

Mortgage Payment Buydown Benefits

The Mortgage Payment Buydown Program can be a beneficial tool for various parties in several different situations.

• Builders, Sellers, or Other Interested Parties – Anyone looking to incentivize a buyer can cover the cost of the prepaid interest, which will greatly increase the buyer’s savings from this program.
• Renters Transitioning to Buying – Ready to buy but not ready for a higher monthly payment? This can help you over the hurdle.
• Buyers Expecting a Raise – This program could be especially beneficial for recent medical school or other post- graduate program graduates who expect to see an income increase soon.
• Buyers with Temporary Income Decrease – If you or your partner is out of the workforce for a period of time, this program can provide the necessary financial aid until they are able to earn an income again.

Don’t let rising rates intimidate you from buying your dream home. Contact us to learn more about our unique buydown program.