If you think you’re ready to buy a home, chances are that you’re paying close attention to the rising interest rates. After yet another rate increase by the Feds, homebuyers are facing higher interest rates than we’ve seen in the last few years. But high interest rates shouldn’t keep you from buying a home. In fact, this can be a great time to buy, especially if you take advantage of opportunities to decrease the interest you pay on your mortgage.
One way to do this is through an interest rate buydown. An interest rate buydown allows homebuyers to get a lower interest rate when taking out a mortgage on a home. With a lower interest rate, homebuyers can save a ton of money on their home over the term of the mortgage.
Of course, an interest rate buydown isn’t just something you can opt into–it will cost you. Typically, a buydown involves purchasing discount points, also known as prepaid interest points or mortgage points, against the mortgage. These points are purchased as an upfront fee, kind of like the rest of your closing costs. Each discount point is usually equal to 1% of the mortgage amount, which means that the cost will change depending on how much you take out in a loan.
But the buyer isn’t the only one who can buy down an interest rate. You can also ask the seller (or builder) to purchase discount points to lower your interest rate and sweeten the deal.
If a seller chooses to buydown, the buyer’s interest rate is typically lowered for a specific period of time to make the mortgage payments more affordable at the beginning of the loan. This can be very useful for first-time home buyers or buyers who may need to buy lots of new furniture or remodel.
Interest can add up fast on a large loan like a mortgage. That’s why it’s important to take advantage of opportunities to decrease your interest rate, whether that’s through a buydown, boosting your credit score, or refinancing down the road.
When looking at interest rate buydowns and deciding if taking advantage of the opportunity makes sense, take a close look at the interest rates you qualify for and how long you plan to stay in the home. Your real estate agent will guide you through this process and help you make the best decision for your financial future. Want to find out more? Send me an email!
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