What is a Mortgage Buydown?

Anytime you hear news of a mortgage rate increase, you will also hear about mortgage buydown options. Offering a buydown option to potential buyers may help get the house sold faster. But exactly what is it?

What the Buy Down Is

Home finance rates are never set in stone. Often times the lender will agree to do a step buy with future buyers if the seller is willing to pay a fee for this. The buydown will basically step the rates over a certain period of time. For example, a “2-1” buydown means that for the first year a buyer pays on the mortgage, the rate will be two percentage points lower than the approved rate. The second year will raise the rate to one point under. On the third year the rate increases to the standard approved rate.

What This Can Do

When the housing market is in a slump offering a buydown can help entice buyers to consider purchasing your home. If you are looking for a way to save money when purchasing a home you may want to consider finding a seller willing to pay for a buydown. The mortgage buydown can save a potential buyer several thousand dollars in cut percentage points.

A buydown is a simple way to lower mortgage payments, and can be a great idea in a slumped economy.