Interest Rate Buydowns

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Real Estate

Interest Rate Buydowns

Interest Rate Buydowns: Enhancing Your Home Buying Power

Are you looking to qualify for a larger loan and purchase a higher-priced house? An interest-rate buydown might be the solution you need. This financing technique allows you to pay extra points upfront in exchange for a lower interest rate during the initial years of your loan. With an interest-rate buydown, you can enjoy a reduced monthly payment, giving you more financial flexibility.

Why should you consider an interest-rate buydown? Firstly, it enables you to afford a higher-priced home that may have been out of reach under normal circumstances. Additionally, the extra points you pay upfront are tax deductible, providing potential savings. If you're relocating for employment, your employer may cover the extra points as part of a relocation package, making a buydown an even more attractive option.

There are different types of buydowns available. The most common is the 2-1 buydown, which typically costs three additional points above the current market points. With this buydown, your interest rate is reduced by 2 percent during the first year and 1 percent during the second year. For example, if you have a 7 percent interest rate on a 30-year fixed mortgage, you'd pay 5 percent the first year, 6 percent the second year, and 7 percent for the remaining life of the loan.

Another option is the 3-2-1 buydown, which reduces the mortgage rate by 3 percent during the first year, 2 percent during the second year, and 1 percent during the third year. After that, you pay the full rate. Some programs offer "flex-fixed" buydowns, where the interest rate increases at six-month intervals instead of annually. This type of buydown provides flexibility and can be beneficial for certain borrowers.

If you're considering an interest-rate buydown, it's important to explore all your options and understand the costs involved. While paying extra points upfront is the most common method, some mortgage companies increase the note rate to cover the cost in later years. Consulting with a trusted mortgage professional can help you determine the best buydown strategy for your specific needs.

Take advantage of an interest-rate buydown to boost your home buying power and achieve your real estate goals. Whether you're a first-time homebuyer or looking to relocate, this financing tool can provide you with greater affordability and flexibility. Explore the possibilities of an interest-rate buydown and make your dream home a reality.

Contact Joint Command Realty today so that we can assist you with the homebuying process.