Interest Rate Buydowns - A money saving incentive for Home Buyers

Buy a Home at Last Year's Interest Rates - How a Rate Buydown Works

With more homes on the market today, there are some great buying opportunities that haven´t been seen in recent years. But the cost of home ownership remains a challenge for many potential buyers, particularly since interest rates are higher than they were a year ago.

What if you could take advantage of today´s buying opportunities, while keeping your monthly payments lower with last year´s interest rates? This can be done by 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:

Buydown Work Sheet

Purchase Price $600,000   Loan Amount - 80% 1st $480,000   Interest Rate: 6.345% (APR 6.71%)       Program: 5 Yr Interest-only   Proposed payment: $2,538   Buydown/Seller Paid: $12,000   New Interest rate: 5.345% (APR 6.31%)       New Payment: $2,138   Savings Monthly: $400   Purchase price: $600,000         Effective Purchase Price     5 year fixed rate loan.     At this payment, using today´s     interest rate, you could buy a     home valued at only $505,438

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!

This illustration was provided courtesy of Jim Kubicka Coldwell Banker Mortgage (858) 692-3330 Rates, terms, conditions and fees subject to change without notice. Rates current as of 9/6/06. Subject to credit qualification. APR subject to increase after initial five year fixed term. Property taxes, insurance and HOA dues not shown. Owned and operated by NRT Inc.