Temporary Buydowns Are Still Very Much “A Thing”
We’ve been pushing “Temporary Buydowns” as a solution to fend off high-rate fatigue for about 18 months now. And, we still think they are great solutions, as borrowers can get rates as much as 3% below the current market rate.
This blog, The Beauty Of Buydowns, explains how temporary buydowns work. The problem though is that buyers cannot pay for temporary buydowns, and many sellers are reluctant to pay for them.
So, we’ve recently switched to offering LENDER-PAID TEMPORARY BUYDOWNS. And, so many clients have opted for this solution that I thought I should blog about it.
Lender-Paid 1-Year Temporary Buydown
We recently offered a borrower two options: (1) “a no points” rate of 6.49% or (2) a 1-Year Temporary Buydown rate of 5.99% (with JVM covering the cost of the temporary buydown).
The client jumped for the Temporary Buydown rate because it cost him nothing and because he thinks rates will fall this year, allowing him to refinance at no cost into an even lower rate before his buydown period is up.
The part about rates falling is key because the temporary buydown comes with a higher rate after year one.
If our borrower had taken the 6.49% “no points” rate, that would have been his rate for the life of his loan.
His temporary buydown loan came with a 5.99% rate for the first year of the loan (1/2% lower than his no points permanent rate), but it will jump to 6.99% for the remaining life of the loan (1/2% HIGHER than his permanent rate).
So, if the borrower is not able to refinance this year, he will be stuck with a higher rate than he would have otherwise had with no buydown.
Anyway – if borrowers want rate relief, they can lower their rate a full 1/2%, at no cost to them, for the first year of their loan with a lender-paid temporary buydown.
What I Hate…
I hate it when famous Ph.D. economists disagree with me… And today, it was Jeremy Siegel – a famous Wharton professor and former Milton Friedman associate. He was on this Julia La Roche Podcast telling the world that he thinks there is a 60% chance we will avoid a recession this year (I am still in the 90% chance of a recession this year). BUT – he also thinks the Fed will still cut rates numerous times to stimulate bank lending – to keep the money supply growing at a healthy pace (as bank lending is where 95% of our money creation comes from).
