Many would-be homebuyers are feeling the pinch from rising interest rates, but you don’t have to! APM has buydown options to help you reduce your mortgage interest rate and get you the lowest monthly payments possible.
Interest rate buydowns are the key to lower interest rates, a smaller monthly mortgage payment, and saving you money.
The current housing market has kept many buyers on the sidelines. When interest rates were low, competition was fierce, and prices were high. With higher interest rates today, it’s harder for buyers to qualify. And even if they can qualify, the idea of a higher mortgage payment can be cause for pause.
That’s why APM provides solutions for borrowers with permanent or temporary interest rate reduction options. Both temporary and permanent rate buydowns provide opportunities to reduce your monthly payments.
Temporary Buydowns
APM offers borrowers two temporary buydown programs. The first is a 3-2-1 buydown, where the interest rate is reduced by 3 percentage points the first year, 2 percentage points the second year, and 1 percentage point the third year. You can read more about this program by clicking here.
APM also offers a 2-1 buydown. This program reduces the interest rate by 2 percentage points during the first year and 1 percentage point the second year of the loan.
At the end of your buydown term, the interest rate will adjust to the original rate (the full interest rate that you locked in when you bought your home). It will stay at this rate for the duration of the home loan or until the loan is refinanced or paid off.
These programs are great options, because temporarily lowering your interest rate allows you to gradually work up to making the full payment. This can take massive pressure off you as a new homeowner.
As we know, interest rates don’t stay stagnant; they rise and fall and change direction. If interest rates ever fall to a level that makes sense for you, you can consider refinancing.
And here is even better news: The money for the temporary buydown goes into an escrow account and is applied to your loan every month during the buydown period. If you refinance or sell during that period, the unused portion gets applied to your home loan, reducing the balance of your loan.
This type of strategy allows you to take advantage of today’s buyer’s market—one in which sellers are much more open to concessions and negotiations than they were even six months ago. You will also face less competition, which means you have a better chance of making a successful bid on your dream home.
Having your mortgage lender provide a pre-approval that incorporates buydown scenarios to include with your offer can also help secure those seller concessions to pay for the buydown!
Permanent Buydowns
Our second interest rate buydown option is a permanent buydown. This type of buydown lasts for the entire loan term. With a permanent mortgage rate buydown, you pay a fee known as discount points to lower your interest rate for the life of your loan. You can purchase as little as 0.125 of a point or as much as 4 points, depending on the loan program.
Each point is equal to 1% of your loan amount, and this fee is due at closing. For example, if your loan amount is $500,000, then 1 point will cost $5,000. It’s best to determine how long you want to remain in your home before investing in a permanent buydown. This is to ensure that you can recoup the upfront costs through a lower payment amount over time.
The breakeven point on permanent buydowns will depend on how much you have contributed and the overall monthly savings. Your APM Loan Advisor can give you a breakdown of your specific scenario to ensure that you make the right decision.
If you’re planning to stay in your home for 10-plus years, a permanent buydown can save you a lot of money. However, if this home is more of a stepping stone for you, it may be wiser to choose a temporary buydown that can yield some good savings for 12 months or 24 months.
With a lower monthly payment amount, you can put the money you save toward your home, credit card debt, student loans, or an emergency fund. A lower interest rate also means you can qualify for more house, which can be a big deal in many markets.
Benefits of Interest Rate Buydowns
Whether you choose a temporary or permanent rate buydown, there are benefits to you:
- Lower payments: By paying a lump sum upfront, buyers can secure a lower interest rate for the initial years of the mortgage—or permanently. This relief makes homeownership more affordable initially and over the long term.
- Improved affordability: Lower monthly payments can enhance a buyer’s ability to qualify for a mortgage and to afford a more expensive home. This can be particularly beneficial for first-time homebuyers or those with tight budgets.
- Financial relief: Interest rate buydowns provide relief by reducing the financial strain in the early years of homeownership. This can be helpful for buyers who anticipate an increase in income down the road or will have other financial priorities during the initial years of the mortgage.
- Easier budgeting: Predictable and lower monthly payments make it easier for buyers to budget and manage their finances. This stability can be especially valuable for those who prefer to make consistent payments while adjusting to the responsibilities of homeownership.
- Potential long-term savings: Depending on the buyer’s financial situation and how long they plan to stay in the home, the savings from lower interest rates can outweigh the upfront cost of the buydown. This can result in long-term financial benefits.
And here’s another piece of good news: When sellers are motivated, they may be willing to pick up the fees involved with your permanent or temporary buydown. Seller concessions toward closing costs have been popular in creating one more reason why this could be the ideal time to buy a home.
Is an Interest Rate Buydown Right for You?
It’s important to weigh the pros and cons of an interest rate buydown with a mortgage professional who can take into account your current financial situation and short- and long-term goals. To connect with an APM Loan Advisor, click here.
Disclaimer: Subject to change without notice, terms and conditions apply. Equal Housing Lender.
