Is Temporary Buydown the hottest purchase option right now?

[Urvashi Vasishtha]

The RE market has been buzzing with news around the keyword; temporary buydown. Some experts believe that the hottest and most talked about purchase option right now is the Temporary Buydown.

They assert that it is a great tool to help ease a buyer into their new home and offer some financial flexibility for the first few years of the loan. However, the question remains: Is it a better option than paying discount points? That depends and is a great conversation to have with borrowers.

Online articles argue when you buy discount points, you decrease the monthly payment, but it takes time for that upfront cost to pay off - taking 5-10 years to recoup the investment. Additionally, the actual reduction in rate received by paying a discount point per Bankrate is about .25%. Not even half a point!

If the long-term prospect for rates indicated, they would continue to climb, meaning the average borrower would stay in their new loan for 5-10 years +, a discount point might make the most sense. However, many respected parties anticipate rates may fall in the future. If so, a Temporary Buydown that reduces the rate by a whole point a year, offering a significantly reduced payment to the consumer, could be best. If borrowers refinance in the first year + of their new loan, those discount points could be wasted. Whereas if the borrower did a buydown, funds remaining in their buydown account help reduce the loan's payoff.

So, if rates were expected to rise, a discount would be the way to go. With rates projected to decrease, a buydown may make more sense. Educate your borrowers and help them make the best decision for them.

What are your thoughts on the subject? Let me know the comments, please. 

[Will Fraser]

Heck yes it is!  Sellers are panicked (reasonably so for vacant homes IMO) and want to have an effective sale.  If they offer a temporary buydown then the buyer can take advantage of the former while still participating in a nice rate.

However, contrary to pre-paid interest or straight buy-downs, the temporary buy-down can be credited towards a refinance in the event that the rates plunge sometime in the first year or so.

This is in essence like a crampon for an ice climber - it allows the person to take advantage of the scenario at hand to effective achieve a result.