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  • Temporary Interest Rate Buydowns

    November 17, 2022 | Blog
  • Minneapolis, MN: For those who are looking to purchase a home in the near future, it's inevitable that you've begun to worry about the rising mortgage interest rates, and how that may affect your home buying journey.

    Fortunately, Cambria Mortgage offers home loan options know as temporary buydowns. These buydown options have been around forever, but as you can imagine, are popular when mortgage rates are high, and almost forgotten about when mortgage interest rates are low.

    We offer these buydown options on most loan, including standard conventional, FHA loans, VA Loans, and even USDA loans.

    The temporary buydown options are a 3-2-1, a 2-1, and a 1-0.

    What does this mean?  Simply, let us assume you are looking at a 3-2-1 buydown. Assume the "real" rate on your mortgage loan is 6.50% *.

    Year 1: Your rate would be 3% lower, or 3.50%

    Year 2: Your rate would be 2% lower, or 4.50%

    Year 3: Your rate would be 1% lower, or 5.50%

    Year 4 - 30, your rate would be normal, or 6.50% (in this example)

    Free to you, but not free

    Temporary rate buydowns are not free. The lender doesn't simply give up the interest they would normally collect on your loan.  Instead, someone else, typically the builder or seller agrees to pay the cost of the buydown directly to the lender up-front as an incentive for you to buy the home they are selling.

    The cost is simple to calculate. You just take the payment difference between the temporary buydown rate and the permanent rate. Assuming the example above, maybe your payment is $300 a month cheaper in year 1, $200 a month cheaper in year 2, and $100 a month cheaper in your three.

    $300 x12 = $3600

    $200 x 12 = $2400

    $100 x12 = $1200

    -----------------------

    Total $7200

    In this example, the builder or seller is paying the lender the $7,200 up-front today, and you will enjoy $7,200 of cheaper payments over the first 3-years of your loan.

  • Just examples

    REMEMBER: These are simplistic examples. Please consult a licensed, experience mortgage professional, like the Loan Officers at Cambria Mortgage, the Joe Metzler team at (651) 552-3681 to run the exact numbers on your exact situation.

     

    * Not real rates. Just an example.