Brokerage logo Brokerage logo Brokerage logo Brokerage logo
  • Home
  • Properties
    • Property Search
    • My Active Listings
  • Buying & Selling
    • Buying & Selling Tips
  • About Me
    • My Bio
    • Contact Me
  • Lennar New Construction Homes
  • Luxury Homes Over 2 Million
  • Paradise Lakes
  • REOs
  • Homes For Sale In Caliente
  • Discover Andalucia: Waterfront Living in
  • Symphony Isles: Luxury Waterfront Living
  • Neighborhood News
  • About Coldwell Banker
  • New Construction Tampa Bay
  • Investment Homes for Rentals
  • Taylor Morrison New Construction Homes
  • M/I Homes New Construction
  • Tampa Bay New Home
  • Coldwell Banker Global Luxury
  • Pendry Residences Tampa
  • Tierra Verde
  • Davis Islands
  • Mirada
  • Premier Waterfront Lots
  • Investor Specials
  • Temple Terrace Golf and Country Club
  • The Eagles Golf Course
  • Hunter's Green
  • Cheval Golf and Country Club
  • More
        • Blog
        • For Buyers
        • For Homeowners
        • For Sellers
        • Housing Market Updates
        • Uncategorized
        • Facebook
        • X
        • Pinterest
        • Copy Link
        • Facebook
        • X
        • Pinterest
        • Link copied to clipboard
          Copy Link

        Social Links Widget

        Click here to edit the Social Media Links settings. This text will not be visible on the front end.

        For Buyers • For Sellers • September 8, 2023

        The Mortgage Rate Buy-Down: An Antidote to Rising Interest Rates

        by Kevin Farfan

        Mortgage Rate Buy-Down

        Are you among the many homebuyers losing sleep over the sharp rise in interest rates? You’re not alone. Interest rates have nearly doubled in the past year and reached their highest levels in two decades, now floating around the mid-6% range. The result? Monthly housing costs for new buyers have escalated by hundreds or even thousands of dollars.

        But fret not; there is a silver lining—a mortgage rate buy-down.

        What is a Mortgage Rate Buy-Down?

        Mortgage rate buy-downs involve paying money upfront to lower your interest rate for a specific period, thereby reducing your monthly payments temporarily. And guess what? You, as a buyer, typically don’t have to bear this cost. Sellers, builders, or even lenders often front this expense to draw buyers to the closing table.

        However, many buyers wonder, “Is there a catch?” In this comprehensive guide, we’ll explore the mortgage rate buy-down, its pros and cons, and whether it’s the right choice for you.

        Why Is it Popular Today?

        A practice that was popular during the high-interest-rate era of the 1970s, mortgage rate buy-downs are making a comeback. Adam Fuller, a senior loan officer at Mortgage 1 in Grand Rapids, MI, points out that sellers are keen on this product as a strategy to incentivize buyers.

        Even lenders, in a scramble for business, might offer buy-downs to lure borrowers. Take, for instance, Rocket’s Inflation Buster buy-down.

        So, if no one has offered you a buy-down, remember: it never hurts to ask.

        How Does It Work?

        A buy-down offers lower monthly mortgage payments for a set time—usually one to three years—before reverting to the original higher rate. There are different types of buy-downs to suit your needs:

        1. 2-1 Buy-Down: For the first year, the interest is 2% below market rate, and 1% lower in the second year.
        2. 3-2-1 Buydown: Here, the interest rate is reduced by 3% in the first year, 2% in the second, and 1% in the third.

        The total savings across the entire loan term can be substantial, often exceeding thousands of dollars.

        The Cost of a Buy-Down

        Since buy-downs are essentially prepaid interest, the seller, builder, or lender pays an upfront fee equivalent to the interest saved, usually placed in an escrow account.

        Pros and Cons

        Pros:

        • Lower monthly payments for a short period.
        • Allows buyers to ease into their new financial responsibilities.

        Cons:

        • You might get accustomed to the lower payments and struggle later.

        Holden Lewis, a home and mortgage expert at NerdWallet, advises borrowers to ensure the mortgage is affordable long-term.

        Buy-Down vs. Adjustable-Rate Mortgage (ARM)

        Buy-downs allow for a fixed-rate mortgage, offering predictability for 30 years, unlike ARMs, whose rates can spike after an initial period.

        Nicole Rueth, senior vice president at The Rueth Team in Denver, says, “These programs give you the stability of having a 30-year fixed payment while having the short-term lower rate benefit [similar to] an adjustable-rate mortgage.”

        To Buy-Down or Not to Buy-Down?

        Mortgage rate buy-downs can be a useful tool to navigate the current high-interest-rate environment. However, it’s crucial to consider your long-term financial goals and consult with experts before making a decision.

        Contact Realtor Kevin Farfan with Coldwell Banker Realty at 813-784-7139 to explore the best options tailored to your homebuying needs.

        Disclaimer: This article is intended for informational purposes only and should not be construed as financial advice. Consult your financial advisor before making any financial decisions.

        Kevin Farfan LLC GRI, PSA, RENE, MRP, C-RETS
        Coldwell Banker Realty
        213 W. Bloomingdale Ave.
        Brandon, FL. 33511
        Cell 813-784-7139
        website: www.kevinfarfan.com
        “I Sell Lifestyles!”
        Related Articles
        For Buyers Luxury Real Estate in Florida: Expert Tips, Tricks & Strategies for Buyers By Kevin Farfan – Tampa-Based Realtor | “I Sell Lifestyles!” Buying a luxury home in Florida—whether for a primary residence or a vacation getaway—is more than just a transaction. It’s about securing a lifestyle that fits your dreams. From the sun-drenched beaches of Tampa Bay to exclusive waterfront enclaves and golf course estates, the luxury […]
        For Buyers Navigating Tampa Bay’s Housing Market in 2024: Why New Construction Is a Smart Move As we look ahead to the next two years, the housing affordability crisis continues to dominate conversations. High mortgage rates and rising home prices are making it increasingly difficult for prospective buyers to achieve their dream of homeownership. However, if you’re in the Tampa Bay area, there’s good news: New construction homes offer an incredible […]
        For Sellers November Real Estate Trends in Tampa Bay: What Sellers Need to Know Post-Hurricane and Heading Into the Holidays As we move through November 2024, the Tampa Bay housing market is at a crossroads. Recent hurricanes, shifting market dynamics, and seasonal trends have created a unique environment for sellers. If your home has been on the market for months, understanding these factors is crucial to strategizing your next steps. Here’s a breakdown of what’s […]

        Coldwell Banker - Central Brandon

        © 2025 Coldwell Banker Real Estate LLC

        Terms Of Use | Privacy Policy

        Accessibility Statement | Fair Housing Notice

        © Coldwell Banker 2023 – 2024. All Rights Reserved. Coldwell Banker and the Coldwell Banker logo are trademarks of Coldwell Banker Real Estate LLC. The Coldwell Banker® System is comprised of company owned offices which are owned by a subsidiary of Anywhere Advisors LLC and franchised offices which are independently owned and operated. The Coldwell Banker System fully supports the principles of the Fair Housing Act and the Equal Opportunity Act.

        Contact Me

        Name looks great.
        Looks like a valid email.
        The more detail the better.

        sending your email

        Success!

        Thank you for your inquiry.