Have you heard that buydowns are making a comeback? A buydown offers buyers an excellent way to obtain a lower interest rate for at least the first couple of years of their mortgage. With interest rates on the rise, buyers and sellers have been looking for opportunities to make the most of their situations. Buydowns can be a great opportunity to help put both buyers and sellers in a good spot. Continue reading to learn more about buydowns and why they are back in demand.
What Is A Buydown?
Before getting into why buydowns are back in demand, it is important to understand what a buydown is. Simply put, a buydown is mortgage financing technique that helps borrowers (buyers) obtain a lower interest rate for the first few years of their mortgage. Buydowns can also allow a person to get a lower interest rate for the entirety of their mortgage term buy paying a large sum of money upfront called a discount point or a mortgage point. With buydowns, buyers can avoid higher rates, while sellers avoid potential larger price reductions.
Who Wants A Buydown?
Clearly, in a market where the interest rates are high, buyers will be more interested in a buydown. The majority of buydowns occur between buyers and lenders. By paying a certain number of discount points, buyers can obtain a lower interest rate and make their mortgage more affordable for the next few years or for the entire loan term.
Sellers may also want to negotiate a buydown with a lender in order to make their property more attractive for buyers. By making a one time deposit to an account that pays out for the discount points, the seller will help the buyer receive a lower interest rate, therefore making the sale more enticing to the buyer. A buydown that is paid for by the seller is considered a part of seller concessions.
Why Are Buydowns Back?
Buying a house is one of the most expensive processes that most people will ever experience in their lives. Not only does buying a house include paying a large sum of money for a down payment and other closing costs, but it also means that you are committing to paying a significant amount of money every month to pay down the mortgage. Unfortunately, when a person gets locked in at a high interest rate, that means that their monthly payment will likely be much higher and it will take much longer for them to pay off their mortgage. However, there are some solutions out there that can make the process easier, including buydowns.
For a time, buydowns went out of style. This was due to the fact that interest rates were at a historical low point for quite a while. However, they have recently been making a comeback. Much of this is due to the soaring interest rates all over the United States. High interest rates are never favorable, so when the national interest rates are high, buydowns become an attractive option for buyers to obtain a lower interest rate.
Do You Need Help Buying Or Selling A Property?
If you are trying to buy or sell a property, we at Premier Utah Real Estate would be more than happy to help you out. We offer excellent real estate services including helping individuals find properties to buy or buyers to sell their homes to. We can provide superior guidance through various complicated real estate processes. Our team is talented and experienced and would be more than happy to help you buy or sell your next home. Reach out today for more information.