A buy down mortgage allows you to purchase more house with your income and enjoy low monthly payments for a couple of years. With reduced payments, you can pay for move in costs and furnishings. You likewise be entitled to a larger mortgage because of lower monthly payments.
Buy Down Mortgage Terms
Buy Down mortgages are available in three packages. A temporary buydown loan, the most typical, begins with a discounted interest rate for one to three years that increases to a fixed rate in yearly increments. You pay the difference in interest payment in an initial payout to the lender at the beginning of your home loan. Some lenders will pay this lump sum, but then charge a higher interest rate for the loan.
For instance, you can have a mortgage with a 6% interest rate that’s decreased to 4% the first year, then raised to 5% the second year, and finally reach 6% on the third year. The difference in the mortgage payments for the first two years will have to be paid to the lender at the time of settlement.
A compressed buydown mortgage works like a temporary buy down loan, but interest rates rise every 6 months. A permanent buydown loan has a low interest rate for the life of the loan, but that difference still needs to be prepaid to the financing company.
Buy Down Mortgage Benefits
The chief benefit of a buydown mortgage is that you can qualify for a larger loan amount based on your income. This could be particularly useful if you expect your income to increase in the near future.
Additionally, initial low monthly payments permit you to pay for the many expenses related to buying a home. The cost of moving expenses, home furnishings, and landscaping can easily add up those first few years.
Buy Down Mortgage Considerations
Buy Down mortgages should be considered along with other types of mortgages. In some cases if the big initial payment was used as part of a down payment, you might find better terms with a fixed rate or ARM. You may also find that if you’re planning to move within 7 years, an ARM can give you the same low monthly payments without the upfront cost.
No matter what kind of home loan you select, research lenders and loan terms beforehand. Compare interest payments and base your decisions on your financial goals.
Author: Gilbert MurrayThis author has published 11 articles so far. More info about the author is coming soon.