What exactly is an interest rate buydown? There are a lot of terms within real estate that we can negotiate, including price, closing date, closing costs, and repairs. However, recently the phrase “interest rate buydown” has come up more than it has in the last five to 10 years, so it’s important that you’re informed on what it entails. 

In our market, mortgage interest rates have become what we're calling now “the great equalizer.” Buyers have some power when negotiating contracts, and sellers are using these buydowns as a proactive way to attract buyers. Right now, interest rates are at about 7%, and that is not that palatable for most buyers, so interest rate buydowns are being used to bring down the price. 

There are a couple of different ways to structure an interest rate buydown. The classic way is to do one permanently, which means that you’re paying the lender to bring the cost down for the entire span of the loan. It’s usually a point or 1% of the loan and buys the rate down 0.25%.

What’s becoming more common is a 2-1 buydown. This is temporary and costs less money. It buys the rate down two points for the first year, one point for the second year, and then after that, it will reset up to the full interest rate that was originally quoted. It saves everyone money.

We're anticipating that interest rates will drop back down to normal levels, which is in the 4% to 5% range, in the next 6 to 24 months. Therefore, these buydowns are a great temporary solution to help buyers and sellers both win even with today’s rates. 

If you'd like to talk about buying a home, selling one, or implementing the 2-1 buydown strategy, please reach out; I’d love to help you. Call or email anytime! I am looking forward to connecting with you.