How to Buydown Interest Rates and Make Home Ownership More Affordable

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Buying a new home is an expensive undertaking, which is why homebuyers generally try to find mortgages with the lowest possible interest rates to finance their homes. Contrary to popular belief, there is no direct correlation between FED rates and mortgage rates. This means that there are several ways you can control your interest rate.

As we all know, having a good credit score and putting down a larger payment of 20% upfront can improve your chances of securing the best interest rate. However, there is another way of lowering the rate even further—you can buydown your interest rate and save money in the future.

Keep reading to find out how you can buydown rates to lower your payments and make the homebuying process more affordable.

What Is a Mortgage Rate Buydown?

A rate buydown allows you to bring down your interest rate by paying for discount points at closing. Also called mortgage points or prepaid interest points, these points are a one-time fee that is paid upfront.

Each discount point is worth 1.0% of your mortgage amount and lowers your rate by 0.25%. For example, if a $100,000 loan has an interest rate of 6%, you can use one discount point to bring down the interest rate by 0.25%. This means you now only have to pay a 5.75% rate on your mortgage.

In a way, when you buydown your mortgage rate, you’re pre-paying your interest. This allows you to not only secure lower monthly payments but also allows you to pay less on your mortgage in the long run. Mortgage buydowns can be an extremely useful tactic for prospective homebuyers to protect themselves from interest hikes, as mortgage rates are predicted to continue rising in the coming years.

How Do You Buydown Your Mortgage Rate?

Buying discount points upfront is the most effective way to buydown your mortgage rate. Though the homebuyer is the one who benefits most from the buydown, it’s not always the buyer who purchases the discount points—builders can also offer to pay points to buydown a prospective buyer’s mortgage rate.

The builder will deposit a one-time payment into an escrow account or pay the lender points at closing to cover the difference between the standard and lowered interest rates. This can significantly lower the payment, making it easier and more affordable to buy a new home.

Benefits of Buying Down Your Mortgage

Apart from allowing you to lock in a lower monthly mortgage payment, irrespective of your credit score, buying down your mortgage has several other advantages.  

A buydown lets you save a significant amount of money during the first few years of your loan. Additionally, if your builder is offering you discount points, it can lower the buying price of your home. This could be especially beneficial to homebuyers who are just starting their career and are expecting their income to steadily increase.

 

 

At Landmark 24 Homes, we’re passionate about providing homebuyers with forever homes that fit their budget. This is why we’re currently offering an excellent opportunity to aspiring homebuyers—if you buy a home from us now, you will get $15,000 to $20,000 off on your new home, along with an additional 2% to 3% off towards closing costs without preferred lenders.

This offer is limited to only two homes per community! So what are you waiting for? Get in touch with any Landmark 24 New Home specialist for more information!