Homebuyers this summer have 2 BIG pain points, one is soaring home prices over the last 2 years. Second, is soaring mortgage rates this year. However, rates are down over ½% since they peaked above 6% in June. And I am hopeful that rates will drop more after the Fed raises short-term rates like they did in June.A great option to help lessen the pain of high mortgage rates is by offering the buyer a seller-paid 2/1 temporary interest rate buydown. What is a 2/1 temporary interest rate buydown? This innovative feature gives buyers a lower interest rate for the first 2 years of their loan and thus a smaller payment too. For example, a homebuyer’s interest rate on a 30-year fixed rate loan may be 3.50% the first year, 4.50% the second year and then 5.50% for the remaining 28 years of the loan.
If a homebuyer borrows $500k their monthly P&I payment the first year at 3.50% would be $2,245. The second year their P&I Payment at 4.50% would be $2533. The third year through the remainder of the loan would have a rate of 5.50% with a P&I payment of $2838.
Thus, for the first year the homebuyer would save roughly $600 a month for 12 months. and the second year they would save roughly $300 a month for 12 months. These are HUGE savings for a homebuyer and allows them to ease into a bigger mortgage payment over the next 2 years with less payment shock which gives them peace of mind to buy a certain home, your home. This may allow a homeowner to sell their home more quickly and for more money.
Now there is a cost to an interest rate buydown that the seller needs to pay for the buyer at closing. With a 2/1 buydown the cost is 2.25% of the buyer’s loan amount. On a $500k loan that I mentioned earlier this cost is $11,250, but it may help your clients sell their home much faster so that they can move into their new home and their next chapter in life sooner.