Mortgage Rate Buydown
A mortgage rate buydown is a strategy where a homebuyer pays an additional upfront fee to reduce the interest rate on their mortgage. This upfront fee is often referred to as points. Each point typically costs 1% of the total loan amount and can lower the interest rate by a certain percentage.
There are different types of mortgage rate buydowns:
1. Permanent Buydown
- The interest rate is reduced for the entire duration of the loan.
- The homebuyer pays points upfront to lower the interest rate over the life of the mortgage.
2. Temporary Buydown:
- The interest rate is reduced for the initial years of the loan.
- The homebuyer pays points upfront, and the interest rate gradually increases over time until it reaches a permanent level.
Mortgage rate buydowns can benefit homebuyers who want to lower their monthly mortgage payments. However, it's essential to consider the overall cost and how long it takes to recoup the upfront fee through the reduced monthly payments.
