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Gosh, I’m sick of talking about rates. But, if you or someone you know are considering buying a home, you do need to know what mortgage brokers are currently offering. In the past, brokers have offered a 2:1 buydown. Now, an effort to combat rising interest rates, they are also offering a 3:2:1 buydown. This concept can be confusing so I’ll give you the basics. A buydown refers to the interest rate of the loan starting in year one and cascading downward from there. Example: On a 2:1 buydown, if your interest rate is 6.5% on the first year of a jumbo loan, the buydown changes it to a 4.5% rate the first year. Then, in the second year it is reduced from the 6.5% to a 5.5%. Essentially whatever your rate is, you can lower it by 2% the first year and 1% the second year.
The same math applies to a 3:2:1 buydown. In this case the first year is 3% lower, then 2% the second year, and 1% the third year. The idea is to get the rates lower to allow more affordable monthly payments for the first 2-3 years with the idea that interest rates will come back down enabling you the ability to refinance at the better rate in the future. With that said, this doesn’t make sense for everyone. Call me if you want to see if this strategy could work for you.
