What are the two types of interest rate buy down programs?

An interest rate buydown program is a mortgage financing technique that allows a homebuyer to temporarily reduce the interest rate on their home loan for the first few years, in exchange for a fee.

There are two main types of interest rate buydown programs:

  • Temporary buydown: This type of buydown lowers the interest rate for a fixed period of time, such as two or three years. After the buydown period ends, the interest rate on the mortgage returns to its original rate.
  • Permanent buydown: This type of buydown lowers the interest rate for the entire life of the mortgage. The borrower pays a higher upfront cost for a permanent buydown, but they will save money on interest payments over the long term.

The amount of money that a borrower pays for an interest rate buydown will depend on the size of the loan, the length of the buydown period, and the amount of the interest rate reduction. 

Interest rate buydown programs can be a good option for homebuyers who are able to afford the upfront cost and who want to lower their monthly mortgage payments for the first few years of homeownership. However, it is important to weigh the pros and cons of an interest rate buydown before deciding if it is the right option for you.

Here are some of the pros and cons of interest rate buydown programs:

Pros:

  • Lower monthly mortgage payments for the first few years of homeownership
  • Can help borrowers qualify for a larger loan amount
  • Can make it easier to afford a down payment

Cons:

  • Higher upfront cost (Another option is to have the seller provide concession to pay down the points for you)
  • Interest rate will increase after the buydown period ends (Refinance when the rates come back down)

If you are considering an interest rate buydown program, let me know and we will connect you with a reputable local lender specializing in rate buy downs!

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