What is a Temporary Buydown?
With inflation and interest rates rising, there is relief. Read on for one of the options we can help with…
What is a temporary buydown?
A temporary buydown is an up-front interest payment that lowers the interest on a fixed-rate mortgage for the first one to two years of the mortgage, after which the interest rate reverts to the full note rate for the remainder of the loan.
To cover the diﬀerence between the reduced payments made by the borrower and the regular payments received by the lender, a predetermined amount is withdrawn from a special escrow account that is set up for that purpose. The total monthly payment received by the lender, consisting of the payment made by the borrower plus the withdrawal from the established escrow account, is the same as it would be in the absence of the temporary buydown.
TEMPORARY BUYDOWN TYPE WHO CAN FUND THE BUYDOWN
Conventional 1/0 Temporary Buydown, 2/1 Temporary Buydown Seller/Borrower/Lender*
FHA 1/0 Temporary Buydown, 2/1 Temporary Buydown Seller
VA 1/0 Temporary Buydown, 2/1 Temporary Buydown Seller
USDA 1/0 Temporary Buydown, 2/1 Temporary Buydown Seller
*Lender-paid buydown is only available using premium pricing and may not be available for every scenario.
How does a 2/1 temporary buydown work?
A 2/1 temporary buydown is a temporary reduction below note rate of two percent (2%) during the first year and a reduction below note rate of one percent (1%) during the second year of the loan,
after which the interest rate reverts to the full note rate for the remainder of the loan. The interest rate change from year 1 to 2 is automatic, and the borrower is not required to requalify for the loan.
To learn more about this and if it’s right for you, reach out to us today.
Posted on October 3rd, 2022 by Ashley Cox