Homebuyers are feeling the pinch, with mortgage rates between 6.5% and 6.7% at the end of September 2024. Although inflation is cooling and there's more talk of potential rate cuts, many buyers still face the reality of high mortgage payments. Now more than ever, buyers are on the hunt for creative ways to lighten the load and make homeownership more affordable. So, what can you do?
That's where the temporary buydown comes in. This mortgage solution makes managing your payments easier as you settle into your new home. Keep reading to learn why this strategy is becoming a popular path to owning a home in 2025.
What is a Temporary Buydown?
A temporary buydown is like having a safety net under your mortgage payments while you adjust to being a homeowner. Instead of paying your total mortgage every month, you get to pay less for the first two years. This happens through what's called a discount point, which is like a fee that helps lower your interest rate temporarily.
Here's how it works
Let's say you take out a $400,000 loan with a 6.5% interest rate in Cincinnati, OH.
Year 1: Without the buydown, your first-year mortgage payment would be around $2,528. But with a 2-1 buydown, your interest rate drops to 4.5% in the first year, lowering your monthly payment to about $2,027.
Year 2: In the second year, your interest rate will increase to 5.5%, and your payments will rise, but they will still be lower than the total rate.
Year 3: By the third year, your mortgage will revert to the whole 6.5% interest rate, and your payments will be around $2,528, the same as if you hadn't used the buydown.
There are different types of buydown options available. With a 2-1 buydown, your interest rate is lowered by 2% in the first year, then by 1% in the second year, before returning to the total rate in the third year. There's also a 1-0 buydown, which reduces your rate by 1% for the first year and then returns to the full rate after that.
Who Is a Temporary Buydown Good For?
This option may be good if you're feeling overwhelmed by the idea of higher mortgage payments and need a little more time to get used to the payments before they go up. Here's how it can help in different situations:
Future Plans: You can use the extra money from a temporary buydown to invest or build savings while your income grows. By the time your full mortgage payments kick in, you'll have built a solid savings cushion and developed a good habit of saving.
Growing families: If you're handling newborn or childcare expenses, a temporary buydown lowers your mortgage payments, giving you more room to manage those extra costs.
Entrepreneurs starting a business: If you're launching a business and need time to reinvest, a buydown gives you the space to bring in sales before taking on full mortgage payments.
How to Get a Temporary Buydown with MARQ Mortgage
Don't be shy - ask your loan officer at MARQ Mortgage about buydown options. We'll walk you through how it works and which programs might fit your situation.
If you're buying a new construction home, builders often offer buydowns as a perk. Simply ask your loan officer if this option is available.
