Temporary Rate Buydown

What is a Temporary Rate Buydown?

A temporary rate buydown is a fixed-rate mortgage program that reduces the interest rate and, therefore, the payment for a temporary period on purchase transactions. The seller often pays the cost of the buydown at closing. And is available for:

  • Conventional primary and second/vacation home purchases
  • FHA and VA primary home purchases
  • Jumbo 30-year fixed primary and second home purchases

Buyers get added flexibility with a lower rate and monthly payments. This program is perfect for those who:

  • Expect an increase in their income in the next few years
  • Have excess seller concessions to use and want to take advantage of a lower starting payment. 
  • You are going from renting to buying and want to ease into your full mortgage payment with an initial lower payment.  

Buydown Programs


How does a temporary rate buydown work? 

 A temporary rate buydown lowers the rate and monthly payment for the first 1,2, or 3 years, then returns to the initial note rate at the end of the buydown period.  Instead of making the total monthly payment from the beginning, the buyer gets reduced starting monthly payments.  For example, on a 2-1 buydown, if the original note rate is 6.50%, the first year the rate is 4.50%, the second year 5.5%, and the third year back to the original note rate of 6.5%.  This provides lower payments for the first two years of the thirty-year mortgage.  

How to buy down a mortgage rate?

The cost of this program is about what the buyer saves in interest over the temporary buydown period. The seller usually pays for the cost of the seller’s proceeds at closing on behalf of the buyer. A lender-paid buydown is also offered generally on the 1-0 program. A buydown calculator uses the purchase price, loan amount, and initial interest rate to calculate the cost. We will provide this to you and your realtor; it just takes a couple of minutes so call us today!   

What are the benefits of a temporary rate buydown?

The seller benefits by offering an incentive to buy their home in a competitive buyer’s market. The buyer benefits because they get lower initial monthly payments without out-of-pocket costs for the initial lower rate and payments. And can refinance to a permanently lower rate in the future.

Negotiating a rate buydown

The buyer or seller can suggest a temporary or permanent rate buydown. The seller can offer it as an incentive to purchase their home instead of another one nearby. For example, the buyer can request the seller pay for the buydown instead of reducing the house’s price. Either way, the buyer and the seller can benefit from this loan program. When using a Realtor, consider the program when making the initial offer or even use it as a negotiating tool throughout the offering process. The best practice is to have your “ducks in a row” with the correct buydown options and costs. We have a rate buydown calculator to make it fast and easy; it just minutes to get this information. Reach out today, and we look forward to helping you!

Information and programs are subject to change without notice. This is not an offer to lend. All applicants must be credit approved and not all applicants are approved. CharterStone Mortgage is not affiliated with any government agency.

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