I. In Monday’s blog, I mentioned that sellers could offer a first-year rate of 4.49% with a 3-2-1 seller-paid buydown.
This is what shocked me.
I have blogged about temporary buydowns at least 25 times over the last 4 years – and I have never received a large number of responses.
On Monday, however, at least 20 agents responded and asked about buydown costs, intending to pitch buydowns to their sellers.
They also asked for buydown finance flyers – which we are more than happy to provide.
But – my bigger point is that temporary buydown acceptance has clearly tipped (finally) because of today’s surprisingly high rates.
What Does It Cost to Offer 4.5% via a 3-2-1 Buydown?
Rule of thumb: In today’s rate environment, it costs about $4,700 per $100,000 borrowed to buy an interest rate down to 4.5% via a 3-2-1 buydown.
So, for a $500,000 loan, the cost would be 5x that, or about $23,500.
To make it even easier to estimate the actual cost for any temporary buydown (3-2-1, 2-1, 1-1), I am again sharing JVM’s Buydown Calculator.
The tool is very easy to use, and I’m also including a link where you can order Finance Flyers to share with prospective buyers.
The spreadsheet is very easy to use and includes a link to order Finance Flyers.
Three quick reminders:
- JVM offers lender-paid buydowns too, but the rates are slightly higher (because we need the extra “rebate” or yield premium to cover the cost).
- Buydowns are often far cheaper than price discounts.
- If someone refinances before all the buydown benefits are “used up,” they get the remaining portion of the unused buydown costs applied to principal.
II. Inflation Cools, but Rates Rose Anyway – Why?
Personal Consumption Expenditures (PCE) inflation came in lower than expected this morning, and rates improved…
But then the bond market said… “Hey… wait a minute, PCE didn’t really cool; they just changed the definition of PCE…”
And then, rates rose slightly. True story: They rightfully eliminated some misleading data, e.g., portfolio management fees, from PCE, and that was one reason it came in cooler than expected.
