2 1 Rate buydown

[Christopher J Woodland]

So, I've come across 2-1- rate buydowns a few times recently. I understand the general concept of it don't really understand the mechanics of how it works. I was hoping someone could explain how you work this into a contract and how it actually works. 

Thanks in advance. 

Christopher Woodland 

[Jacob Lapp]

@Christopher J Woodland

It’s a pointless tactic that mortgage brokers are using to make uneducated buyers feel good about getting a “good rate”.

There is zero tactical benefit of this unless you think the dollar will be losing value within those 2 years.

If you compare it to no seller assist or seller concessions obviously it’s better. But you’re asking the seller for a price reduction on their end to go towards your rate for the next 2 years. If you look at the costs vs savings if the seller pays 5k toward the 2/1 Buydown in those 2 years you’ll save exactly 5k or less. So you are giving the mortgage company a 5k loan with negative interest for 2 years.

The alternative is getting the seller assist/ seller concessions toward your closing costs. 5k today is more valuable than 5k 2 years from now.

The much better alternative is get a seller assist