What is a Mortgage Rate Buydown?
A mortgage buydown is a financing strategy that allows you to pay a lower mortgage rate for the first few years of your mortgage, typically either the first two or three years. You will pay the difference between the original or “true” interest rate and the lowered interest rate to your lender at closing in the form of mortgage points.
However, thanks to inflation, not only can this strategy allow you to increase your mortgage payment in line with your income as you move forward in your career, but can also save you money in the long run. Overall, you could save thousands of dollars annually on your mortgage payment, by simply “buying down” your interest rate
The two most typical mortgage buydown structures are the 3-2-1 and 2-1 strategies.
In the 3-2-1 mortgage buydown structure, you pay lower mortgage rates for the first three years, with the rate increasing by 1% each year- so, by the start of the fourth year of your mortgage payments, you will be paying the true mortgage rate.
The 2-1 structure works almost exactly the same way, but for only a two-year time period. Therefore by the start of the third year, in this case, you would begin to pay the true mortgage rate.
In general, whether you should purchase a mortgage buydown depends on several factors. For example, you should consider the interest rates you qualify for, the upfront costs of purchasing a property, and your expected income post-purchase.
To test out possible mortgage costs, check out this online calculator. To calculate your potential savings through mortgage buydown, use this simple breakeven formula:
Breakeven Point (in Months) = Cost Of Mortgage Points ➗ Monthly Savings
By implementing this formula, you can calculate exactly how many months it will take for you to break even on your mortgage buydown, to determine if it’s worthwhile for you.
How Can YayPad Help?
With YayPad’s commission rebate, you can significantly reduce and/or entirely eradicate the cost of your mortgage points.
When purchasing a property, you will pay a commission fee of approximately 5-6% of the purchase price to the real estate agent and their firm. Real estate agents generally receive half of this, meaning they earn a commission of approximately 3%. However, at YayPad, you will receive a commission refund of 50%, saving you thousands of dollars!
Through receiving this rebate, you will save thousands of dollars- for the purchase of a $500,000 home, for example, you would receive a $7,500 commission refund. Check out this calculator to estimate how much YOU can save with YayPad!
You can then apply the commission refund towards the mortgage points for your mortgage rate buydown. Essentially, YayPad will give you FREE buy down your mortgage rate, thereby saving thousands on your annual payment and hundreds of thousands over the life of your mortgage loan.
Overall, working with YayPad will help you cover the upfront costs of a mortgage buydown, so that you can enjoy lower interest rates and save as much money as possible.