Mortgage Interest Rate Buydowns

By RealEstateColorado.Net, Inc.

Interest Rate Buy Downs

The most common buy down is the 2-1 buy down. In the past, for a buyer to secure a 2-1 buy down they would pay 3 points above current market points in order to pay a below market interest rate during the first two years of the loan. At the end of the two years they would then pay the old market rate for the remaining term.

As an example, if the current market rate for a conforming fixed rate loan is 8.5% at a cost of 1.5 points, the buy down gives the borrower a first year rate of 6.50%, a second year rate of 7.50% and a third through 30th year rate of 8.50% and the cost would be 4.5 points. Buy downs were usually paid for by a transferring company because of the high points associated with them.

In today's market, mortgage companies have designed variations of the old buy downs rather than charge higher points to the buyer in the beginning they increase the note rate to cover their yields in the later years.

As an example, if the current rate for a conforming fixed rate loan is 8.50% at a cost of 1.5 points, the buy down would give the buyer a first year rate of 7.25%, a second year rate of 8.25% and a third through 30th year rate of 9.25%, or a three quarter point higher note rate than the current market and the cost would remain at 1.5 points.

Another common buy down is the 3-2-1 buy down which works much in the same ways as the 2-1 buy down, with the exception of the starting interest rate being 3% below the note rate. Another variation is the flex fixed buy down program that increase at six month interval rather than annual intervals.

As an example, for a flex fixed jumbo buy down at a cost of 1.5 points, the first six months rate would be 7.50%, the second six months the rate would be 8.00%, the next six months rate would be 8.50%, the next six months rate would be 9.00%, the next six months the rate would be 9.50% and at the 37th month the rate would reach the note rate of 9.875% and would remain there for the remainder of the term. A comparable jumbo 30 year fixed at 1.5 points would be 8.875%.

<a href="http://www.summitcountymountainproperty.com/blog/" target="_top"><b>Breckenridge Real Estate Blog</b></a>
Search Breckenridge Real Estate News on Breckenridge Colorado homes with our Breckenridge Blog

For additional resources visit: Send a Free Colorful Colorado Post Card
Search for Homes and Land in the Summit County MLS

Denver Real Estate

Breckenridge Colorado Real Estate

Aurora Colorado Real Estate

Colorado Homes for Rent Attention Landlords and Property Management Companies.... Post a Full WEB PAGE AD and POST up to 5 PHOTOS for FREE! of your Colorado investment property on one of the best resources on the internet for Colorado investors to find good quality tenants !

Search For FREE! "Use Your Mouse to Rent Your House" tm

Articles © Copyright 2005 by RealEstateColorado.net, Inc.