Are rate buy downs a good idea?
A question I have been getting a lot!!
Watch a see an example
@Living In Colorado! -Great Life Colorado
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transcript
hey everybody so I’ve been getting asked
an off a lot so how smart are these
temporary rate buy Downs for buyers and
sellers that we’re seeing and that is a
great question and I’m here to answer
some of those questions and give you a
little bit of math behind it as an
example so just a disclaimer I am a real
estate agent not a lending officer so
for some clarification on any of this
reach out to a lender I’m just giving
some examples here so let’s get into it
first off what is it if a seller is
offering a temporary rate buy down it’s
really a great way to entice buyers as
kind of a win-win it’s an awesome tool
in today’s environment makes it more
enticing for the buyers it gives the
sellers another uh trick in their their
bag of tricks here and it’s a good way
for everyone to win there’s two main
types of buy Downs that we’re talking
about either a 2-1 or a three two one
um basically the way a two one would
work is you have your interest rate in
the first year of the loan is going to
be reduced by two percent and then one
percent in the second year for a 3 2 you
want it’s the same thing just over
basically a longer period the rate is
reduced by three percent in Year One
two percent year two and then one
percent in year three of the loan so
let’s look at how impactful this could
be on some payments so on a three two
one for basically a four hundred
thousand dollar loan the payment in year
one is going to be reduced by seven
hundred and fifty one dollars and fifty
five cents per month in year two that’s
going to be
513.92 and then in year three 263
dollars and one cent it makes a
tremendous difference in the
affordability and the ability of people
to pay these loans so here’s the kicker
points when you buy points on your loan
if you’re just getting a regular loan
and you pay down points to get your
interest rate lower that money that you
pay on to buy that rate down is
permanently lost if you ever refinance
because you’ve paid to get that rate
where it was and then if you refinance
it you just lose that savings so most
everyone expects rates at least in the
industry to be lower within about the
next 24 months and they expect that the
refinance activity is just going to be
through the roof because we’re all in
these high rates right now and everybody
wants to get back to where they were so
all those funds that are paid in points
right now are going to be lost with a
temporary rate buy down the excess funds
are not lost those are funds are to use
through use to reduce the loan amount
when the consumer refinances into the
lower rate so it’s a major advantage to
the consumer and again it’s just an
amazing opportunity to kind of as we say
marry the house and date the rate so
knowing the proper structure of this
tool is going to greatly reduce your
days on Market if you’re a seller and
basically keep hesitant marker hesitant
buyers motivated in the market and ready
to pull the trigger on your home so if
you want some more details about this
reach out I’d be happy to talk how the
strategy could play into your listing or
if you’d like I’ve got a couple
preferred lenders I’d be happy to point
you to if you need some more questions
answered until then enjoy your great
life in Colorado thanks for watching
