I want to take a couple seconds just to talk a little bit about this thing that you might be hearing more about lately. It’s known as a “2/1 buydown”.
It's not as complicated as it sounds and it is a huge benefit to anybody that's looking to purchase a home while rates are 7 to 7.5% (at least at the par range, which means free rate). So take the following example: if your loan is going to be $300,000 for a 30-year fixed with a 7% interest rate, the monthly payment for principal and interest is going to be around $1,996.
What a 2-1 buy down does is, it will lower the interest rate from 7% to 5% for one year. Because it lowers the interest rate from 7% to 5%, it's going to lower your principal and interest payment from $1,996 to $1,610. That's a monthly savings of $386 dollars!
In this scenario, the interest rate will remain at 5% for one year. The second year that interest rate will increase from 5% to 6%. That monthly payment will then be $1,799, which is still lowering the payment about $197 dollars less than what the payment would be at 7%.
What happens here is that there is a monthly savings of $386 dollars for each month for the first year and $197 dollars per month per month for the second year. When you add all of that up, that's almost $7,000 that you're saving yourself in monthly payments! That money is paid up front at closing by the seller.
Here are the numbers:
· $1996 monthly payment for the first 2 years = $47,904 (7% for 2 years) OR
· $1,610 monthly payment for the first year = $19,320 THEN (5% for first year)
· $1,799 monthly payment for the second year = $21,588 (6% for the second year)
· Total of $40,908 in total payments for the first 2 years
This is a 2-year savings of $6,996!
Call or schedule an appointment if you'd like to discuss further. I'd love to help!
Terry Roberts, USMC Veteran Sr. Mortgage Broker NMLS 397987
E Mortgage Capital
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