With interest rates higher than they’ve been in recent years, many buyers are looking for creative ways to lower their monthly mortgage payments. One option growing in popularity is the mortgage rate buydown—a strategy where you pay upfront to temporarily (or permanently) lower your interest rate. While this may sound complicated, it can actually be a smart tool when used correctly.
There are two main types of buydowns: temporary buydowns, like a 2-1 buydown, and permanent buydowns. With a 2-1 buydown, for example, your rate is reduced by 2% in year one and 1% in year two before returning to the full rate. This can ease the transition into homeownership and give you breathing room if you expect your income to grow—or if you’re waiting for rates to drop and plan to refinance.
Permanent buydowns, on the other hand, involve paying “points” (a percentage of the loan amount) at closing in exchange for a lower interest rate for the life of the loan. It’s an upfront investment, but over time, the savings can be significant—especially for borrowers planning to stay in the home long term.
Not sure if a buydown makes sense for you? We can help you crunch the numbers and understand your options. Reach out to us for a personalized loan scenario—you might be surprised at how much flexibility you really have.