Payment relief is what every borrower is looking for right now – in the face of high rates and high home prices.
And investors that buy our loans – desperate for business – continue to come up with more aggressive solutions.
I. Interest Only Loans
I blogged in early June about Interest Only (I/O) loans, pointing out how an I/O loan can easily shave $300 off a payment for a $500,000 loan.
Since I wrote that blog, though, the rate premium for I/O loans (vs. fully amortized) fell sharply – making I/O loans even more competitive.
And that is why I am bringing them up again. Every borrower looking for payment relief should consider an I/O loan now.
I/O loans are better than ARMs for payment relief too for two reasons: (1) they offer more payment relief; and (2) they come with fixed rates, so borrowers avoid the interest rate risk that comes with ARMs that will adjust in 5 or 7 years.
II. Interest Only Temporary Buydowns! (Payment-Relief City!) (Cheaper Too!)
If a borrower really, really wants payment relief – THIS is the way to go: A combination of both an I/O loan and a 2-1 temporary buydown.
As a reminder, a 2-1 buydown buys the interest rate down 2% in the first year of the loan, and 1% in the second.
Hence, a borrower could get a rate in the 4% range in year #1 – and have a mortgage payment under $2,000 for a $500,000 loan!
Even better: I/O buydowns are much cheaper than fully amortized downs!
This is because the cost of the buydowns is based on the lower I/O payment, not on the much higher fully amortized payment.
III. BUYER-Paid Temporary Buydowns!
Until now, buyers have NOT been allowed to pay for their own temporary buydowns.
Hence, we have been touting the Seller-Paid and Lender-Paid buydowns.
But – they have drawbacks:
Sellers are often reluctant to foot the expense of a buydown. And lender-paid buydowns come with slightly higher rates.
So – buyer-paid buydowns are an excellent solution for buyers who want the lowest possible buydown rate and payment relief.
This is particularly the case when buyers are able to obtain gift funds from relatives.
Gift funds for a temporary buydown are a near-perfect way for Mom and Dad to help their kids affordably get into a home.
