This brief article defines buy-down mortgages and explains how they work. A buy-down mortgage is a fixed rate mortgage that has a below-market...
This brief article defines buy-down mortgages and explains how they work. A buy-down mortgage is a fixed rate mortgage that has a below-market...
View New Home Loans Guide RSS feedThis brief article defines buy-down mortgages and explains how they work.
A buy-down mortgage is a fixed rate mortgage that has a below-market interest rate which is in place for a stated initial period. Lenders receive payment subsidies in the form of additional discount points paid by builders, sellers or buyers.
If the buyer is a first-time buyer who may be considered borderline when trying to qualify for a loan, this may be a good option for them. With a buy-down mortgage, the lender agrees to offer this loan at a lower interest rate for the first few years of a longer-term, fixed-rate mortgage. After the discounted period, the buyer returns to paying the regular interest rate and could even end up paying a higher rate than the one they would have paid had they obtained a conventional fixed-rate mortgage from the start.
Still, many first-time buyers find that buy-down mortgages help them get a larger home than they initially expected. Before getting this type of loan, it is essential for the buyer to consider their ability to make the mortgage payments after the buy-down period ends.
There are many variations in formulating buy-down mortgages, so the buyer should check with various lenders for the arrangement best suited to their needs and circumstances.
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