30 Years of
Mortgage Experience

NMLS# 3700

215-396-8101 or 877-214-9417

30 Years of
Mortgage Experience

NMLS# 3700

215-396-8101 or 877-214-9417

Wednesday, December 13, 2017
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Mortgage Applications

 

 

 

Mortgage Applications

 

 

 

Interest Rate Buy Downs

In certain markets, Interest Rate Buydowns may be available. In general Buydowns this is how they work. Payments are reduced and figured on a lower interest rate over a specific term. The difference between the “real” note rate and the lowered interest rate is paid in cash by the seller or the buyer. The more common buydowns are 3-2-1 and 2-1.

For example, the 2-1 Buydown with a loan amount of $350,000 which has a fixed interest rate 6.75% for 30 years. To “buy down” the interest rate, the cost would be a lump sum of $8,063.

  1. First-year interest rate is 4.75%, monthly payment is $1,826.
  2. Second-year interest rate is 5.75%, monthly payment is $2,043.
  3. Years three through 30, interest rate is 6.75%, monthly payment is $2,270.
    • 1st-year savings (as compared to $2,270 per month) is $444 per month or $6,332.
    • 2nd-year savings (as compared to $2,270 per month) is $228 per month or $2,731.

Add up the annual savings: $6,332 + $2,731 = $8,063. Therefore, it costs $8,063 to buy down the interest rate and payments for two full years.

Contact your mortgage professional to discuss the availability of these options for you