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Want to get an Interest Rate 2% Below the Market? Try a Temporary Buydown

Interest rates are steadily climbing upward, which has made homeownership even more expensive. Buyers in markets all across the country need to reduce their overall costs in any way possible; for many, this means finding the lowest available interest rate.

There is one option that could be ideal for your next home purchase, especially if your income will likely increase soon. A temporary buydown, where your interest rate is reduced for the first two years, could create the savings you need to make a competitive offer on a world-class home.

Temporary Buydown Mortgages: A Real Solution to Rising Interest Rates

Housing has always been expensive, but demand for single-family homes has skyrocketed over the past two years. (Essentially, since the beginning of the pandemic.) This increase in demand has vastly accelerated the value of houses, as more buyers are competing for a much smaller inventory of homes. With more buyers and fewer available homes, the price of houses has swiftly accelerated.

Although purchase prices have been high for a while, there is now another factor driving up homeownership costs: interest rates. According to statistics from Freddie Mac, interest rates have been climbing upward since December of 2021. In late December, the average interest rate on a 30-year fixed-rate mortgage was 3.05%; the latest statistics show an average of 5.81%.

This increase makes already-expensive houses even more costly, which is why there is an increased need for mortgage solutions like the temporary buydown program.

What is a Temporary Buydown Mortgage Program?

With a temporary buydown program, you essentially qualify for a mortgage with an interest rate at a certain level, but for the first two years of the mortgage, your interest rate is reduced.

Our program is a great example. We offer a 2-1 buydown program that can bring tremendous savings, especially if you are searching for a high-value loan. With this loan program, you qualify for a typical loan, but for the first year, your interest rate is reduced by 2%! In the second year, the interest rate is 1% lower than the base rate used on the loan. Over a 24 months, you could easily save $10,000 or more on your total mortgage payments.

Currently, this is an option only for FNMA- and FHLMC-supported mortgages, so conforming limits do apply. However, most buyers will be able to take advantage of these mortgages.

Our temporary buydown program is available for both primary and secondary homes, so buyers of various properties will have opportunities to reduce their interest rates.

This type of mortgage is similar to purchasing mortgage points. But it’s not entirely the same. When you purchase discount points, you are essentially paying a higher upfront cost to reduce the interest rate over the life of the loan. This slightly reduces the rate over the long term, while a temporary buydown significantly reduces the rate over the short term.

It’s important to note that you will qualify for the mortgage using the full payment. Essentially, you need to be able to afford the full payment (the regular payment that comes after the initial two years) with your current income.

When to Use a Temporary Buydown?

Saving money is never a bad thing, and homebuyers in any situation, no matter what their financial circumstance, can take advantage of this program. However, the temporary buydown is usually ideal for buyers struggling to find a house they can afford yet expect to have a higher  income over the next few years.

It’s also a good option for buyers who do not expect to stay in the house for an extended period. If you are purchasing a small starter home, but expect to have a larger family (and hence need for a larger home) in the next few years, this program could help you save thousands of dollars, which could be used towards the purchase of your next property.

Temporary Buydown vs Purchasing Mortgage Points

There are a few ways that borrowers can reduce their mortgage interest rates, including temporary buydowns and mortgage points, which are purchased at the beginning of the loan and used to permanently lower your interest rate.

While each person’s situation is different, purchasing mortgage points is usually better when you will have the loan for an extended period, while a temporary buydown is better if you plan to sell the property and pay off the mortgage early.

If you are a long-term buyer, you may want to consider purchasing mortgage points. However, if you are a buyer who will move out in a few years, this temporary buydown program may be the perfect choice.

An Example of This Program in Action

Here’s an example of how our temporary buydown agreement works. Suppose you have made a home purchase using a 30-year loan of $720,000 with an interest rate of 6%. Under this structure, the principle and interest payment (P&I) would be $4,316.76.

However, when using the temporary buydown mortgage program, the first year would have an interest rate 2% lower than the loan’s rate. This means that the first 12 payments would use an interest rate of only 4%, which would translate into a payment of $3,437.39. Your total savings for the first year would be roughly $10,500!

For the second year, you would still have significant savings, although they may be lower than the rate in the first year. At this point, the interest rate would be 1% lower than the base rate, so in our example, you would be paying only 5% interest. The monthly payment would be $3,865.12, creating an annual savings of roughly $5,400.

Overall, you would have saved $15,972.12, which is why this is such a phenomenal program for buyers all across the country.

Let’s Get You Qualified for a Temporary Buydown Mortgage Today!

If you are ready to reduce your interest rate and save thousands of dollars in the first two years of your loan, contact our team today. We’ll help you get qualified for a loan that fits your specific needs, so give us a call and let’s get started right away!

Whether you are purchasing your first home or a secondary property, we’ll be ready with the service and support you deserve!