MARKET UPDATES
Market Updates: October
With interest rates still weighing on buyers, we’re seeing more conversations about seller-paid rate buydowns. It’s a fairly simple concept, and one that can benefit both buyers and sellers.
Rather than reducing the asking price, a seller offers a credit at closing to temporarily lower the buyer’s mortgage rate. The most common is a 2-1 buydown, which reduces the rate by 2% the first year, 1% the second year, and returns to the original rate in year three.
Here’s what that looks like on a $1,200,000 home purchase with 20% down and a 7.5% interest rate:
Year 1: $5,451/month
Year 2: $6,068/month
Year 3 onward: $6,712/month
The cost to the seller is approximately $22,900.
Now, here’s where it gets interesting. That same $22,900 offered as a price reduction would save the buyer roughly $130 per month. Used toward a buydown, it saves approximately $1,260 per month in the first year alone.
For sellers, it’s an opportunity to offer something meaningful without lowering the sale price. For buyers, it provides a little breathing room during those first two years, with the possibility of refinancing if rates come down.
Of course, there’s no guarantee rates will drop, and buyers still need to qualify at the full mortgage rate. But in a market where everyone is looking for a little more flexibility, a buydown is worth considering.
*Figures are approximate and assume a 30-year fixed loan.*
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