I. Rates Never Move In a Straight Line! (Why This Is So Important!)
Rates have trended steadily upward since 2022 – and they are now back to levels we have not seen since 2023 (briefly) or the 1990s (when Beanie Babies were considered an “investment”).
But here’s the thing: Even though the trend has been upward, there were deep troughs where rates dipped as much as 1%! April and December of 2023 are examples, as are 9/24, 3/25, and 2/26.
And every time we slid into a rate trough, we refinanced our entire eligible database!
Economists love to say … “it’s irresponsible to tell borrowers they can refinance when economic data is telling us that rates are going higher…”
But – those economists don’t (and could never, for that matter) run mortgage companies. So, they are blissfully unaware of rate troughs and how savvy mortgage companies exploit every single one of them.
Hence, when we tell borrowers taking temporary buydowns or ARMs that they can likely refinance, they will very likely be able to refinance – like 80% of our borrowers have done since 2022 – despite the upward trend.
II. Clean Summary of Temporary Buydown Benefits – For Both Sellers and Buyers
For the seller, there are two main benefits:
- Paying for a buydown is often much cheaper than discounting a home to get it to sell.
- Being able to market a low buydown rate, e.g., 4.49%, moves listings much faster (we’ve seen amazing results in Texas, for example, time and again).
For the buyer, there are even more benefits from a seller-paid buydown:
- The final rate, after the buydown period ends, is still today’s market rate (the rate is not higher because a buydown is in place).
- The buyer gets tremendous interest rate and payment relief in the first few years of the loan.
- If buyers refinance before the buydown period ends, they get to apply the unused portion of the buydown cost to their principal (even though they did not pay for the buydown).
III. Hybrid Buydowns – Where the Seller and Lender Split the Cost
I mentioned recently that a 3-2-1 buydown to get to 4.49% costs about $4,700 per $100,000 borrowed. Or $23,500 for a $500,000 loan, or $47,000 for a $1 million loan.
I also know many sellers balk at these costs.
Hence, we like to remind everyone that these costs can be split between the seller and the lender.
The rate will be slightly higher (so the lender can garner additional rebate to cover their portion), but these “hybrid” buydowns are still an excellent way to offer buydown rates when sellers are reluctant to foot the entire bill.
