Mortgage Buydowns: Should You Buy Down Your Interest Rate?
Lower Your Monthly Mortgage Payment with a Temporary Buydown
Ready to buy a home but concerned about interest rates? A temporary buydown could be the answer.
Ease into the homeownership journey with a lower starting monthly payment. Free up cash for all the things new homeowners need:
- Buy new furniture
- Spring for fresh paint
- Upgrade appliances
What are the advantages of a temporary rate buydown? Let’s take a look.
What is a temporary mortgage buydown?
With a temporary mortgage buydown, the seller, homebuyer, or Planet will pay an up-front fee in exchange for a lower interest rate for a set period.
- In a seller-paid buydown, the home’s seller funds the buydown
- For buyer-paid buydowns, you buy down your rate
- In a lender-paid buydown, like Planet’s 1st Year Flex, we fund the buydown
After the temporary buydown period ends, your interest rate returns to the non-reduced rate.
Temporary buydowns are just one way Planet works to be a true partner on your mortgage journey
How do you buy down an interest rate?
Here’s an example using a 1-0 buydown program.
- Jessica qualifies for a mortgage loan and buys a home at a 6% interest rate using Planet’s 1st Year Flex temporary buydown.
- For the first year, she pays 5% interest (yep, for the whole 12 months!) and Planet pays the other 1%.
- Starting in the second year, Jessica pays 6% interest.
If you’d like to learn more, feel free to contact us — or get a free rate quote today.
Are there other types of buydowns?
There are lots of buydown options. The numbers tell you how they work. The first number tells you how much the interest rate drops and the second tells you how long the discount lasts.
- 1-0 buydown: 1% lower rate payment the first year only
- 2-0 buydown: 2% lower rate payment the first year only
- 2-1 buydown: 2% lower rate payment the first year and 1% lower rate payment the second year
What are the advantages of a temporary rate buydown?
Seller-paid temporary buydown benefits are obvious — they pay to lower your monthly payment!
Buyer-paid and Planet-paid temporary buydowns also have advantages.
- Get the effect of a lower interest rate mortgage for the first year (or two)
- Lower monthly payments ease you into homeownership expenses
- Use the funds you’re saving each month for home improvements, etc.
Temporary mortgage buydowns can be useful when you’re on a tight budget or expect your income to increase in the near future.
Some borrowers use a temporary rate buydown in addition to the benefits of other affordable home loan options, such as FHA or VA home loans.
It’s important to remember that a temporary buydown is exactly that: temporary. You aren’t getting a permanent lower interest rate. At the end of the buydown period, if you don’t refinance to a lower rate, you’ll pay the full monthly amount
What are today’s rates for temporary rate buydowns?
Interest rates can change rapidly. Sometimes, more than once a day. To get the latest rates and great guidance on a mortgage loan for your unique needs, call and speak to one of our mortgage professionals.
At Planet Home Lending, we understand your goals, and we're here to deliver the solutions, resources, and support you need to thrive. We’ll help you move forward faster, ensuring the process is done right every step of the way.
Planet's 1st Year Flex is a one-year lender-paid temporary buydown mortgage which may result in a slightly higher interest rate. This mortgage may incur a higher long-term cost than a non-buydown mortgage. Temporary buydowns are eligible for purchase only, 1st lien, 30-, 25-, 20-, 15-year fixed-rate, Conventional, FHA, VA, and USDA loans. Loan programs ineligible for Planet’s 1st Year Flex include but are not limited to, Adjustable-Rate Mortgages (ARMs), Refinances, Investment Properties, Renovation, Constructions Loans, Jumbo, Non-QM, Bond Loans, and Bridge Loans.
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