A buydown mortgage is something in which the buyer buys down a loan. He obtains a lower interest rate and lowers the monthly payments. In this article, Dc Fawcett, an expert in wholesaling, rehabbing and cash flow investing, reviews a buydown, the types of buydowns and the benefits of a buydown.
The buydown mortgage works by depositing cash estimated by calculating at the buydown percentage in advance. The bank or the lender then reduces the interest rates and hence the monthly payments. For instance: you are taking a 30 year old mortgage for $ 30,000 for a rate of interest 5%. You can pay a 1% extra upfront fees and the lender lowers the rate of interest by 0.25%. The rate of interest then diminishes by 1/4. This helps you save money in the monthly payments and helps you plan ahead.
A 2-1 buydown is a Mortgage where the interest rates are lowered in the first 2 months and then it becomes a fixed rate mortgage. The interest rate increases step by step and becomes constant after the first 2 months.
A 3-2-1 buydown
A 3-2-1 buydown is a technique in which the interest rates are lowered by 3%, 2% and 1% in the first 3 consecutive months. They increase in this slow fashion and then become constant. This 3-2-1 buydown mortgage is extremely beneficial to the buyers. They can save money for the increased monthly payments ahead. The fact that the interest rate becomes fixed after 3 years helps them plan ahead by looking at their present monthly income and saving for the future.
What should you consider before you take a buydown
Before you take a buydown, it is important to estimate over what time you can earn back the interest bought down. Suppose you pay a buy down amount of $25000 for a mortgage, then you should be able to estimate after how much time you can get this money back. The decision to take a buy down also depends upon how long you are going to stay in that home.
Benefits of a buydown
A home builder or seller offers the buy down sometimes. He allows a buy down for a fixed period or for the entire mortgage. This allows the home buyers who cannot afford heavy downcash or those who cannot pay high monthly payments to become eligible for the loan. This type of buy down is usually a no cost mortgage interest rate buydown. Another important benefit of a buy down is that the down payment can be deducted from tax. This down payment comes down as mortgage points and can be debited from tax only in the same year as it is being paid for house purchase.
By reading this review by Dc Fawcett, a virtual real estate investing expert, you can get immense insight into the various aspects of a buydown. Fawcett is the owner of virtual real estate investing systems in which he gives tips to expand people’s real estate investments. He invests in areas which he does not live in and is a virtual real estate investing whizz and mentor.