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George Cooke
Realtor(R)
CalBRE # 01435275
Coldwell Banker
Residential Brkrg.
 
(858) 472-4286
 
 
www.RBlistings.com
 
www.GeorgeCooke.com
 
 

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:

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
NMLS # 268849
Guaranteed Rate Affinity (858) 692-3330

Rates, terms, conditions and fees subject to change without notice.


 

 
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