As interest rates fluctuate, you may see lenders offering mortgages with buydowns. This is a different type of mortgage than if you buy down the rate.

I’ll explain: If you buy down the rate, you are paying extra money, usually points, to get a lower rate. The rate you buy down becomes the rate for the life of the loan.

A buydown is a different product; let’s look at a 2/1 buydown as an example: If the 30-year fixed rate is 4.5%, the buydown start rate for that 30-year fixed mortgage is typically higher, say 4.75% in this example.

A 2/1 buydown means the rate is 2 percent lower in the first year, and 1 percent lower in the second year, and then 4.75% for the rest of the loan term. The advantage is you have a lower rate for the first two years of the loan. The disadvantage is that your 30-year fixed rate is 4.75% when you could have had 4.5% without the buydown.

Thus, if you know you will have the mortgage for only a couple years, or your cash flow will be tight in the first year or two of the new home, then you may consider a buydown to lower your payments.

Contact us and we can see if a buydown is right for you.

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