Interest Rate Buydowns - A money saving incentive for Home Buyers
Buy a Home at a Lower Interest Rate - How a Rate
Buydown Works
With affordability beiing a big issue for Buyers in today's market, a lower interest rate can help save you a lot of money over the life of the loan. But, what can you do if interest rates begin to rise?
You might consider negotiating a "Seller Buy-Down" of the current
interest rate.
How does this work for the home buyer? Well, suppose a seller is willing to
lower their sales price, but not enough to bring the monthly payment into "affordable
territory". An alternative would be to replace that price reduction with
an effective buy-down of the interest rate. A buy-down can lower the interest
rate for the life of the loan, reducing the monthly payment, and creating enormous
savings over the life of the loan.
The big advantage to the home seller is that they can help a willing buyer
obtain qualified financing, enabling them to complete the purchase. It can
also generate tax advantages, and become a win-win for the buyer and seller.
The following example demonstrates how this can work:
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In this example, a Rate Buydown that cost the Seller $12,000, would enable the Buyer to purchase a home priced $94,562 higher, while keeping the same monthly payment of $2,138. The same approach applies to larger transactions also! |
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