Information on how a 2/1 buy down works from Cornerstone Mortgage
As rates are going up, I wanted to discuss our 2/1 buy down option. This program allows you to lock into a 30-year fixed mortgage instead of an Adjustable-Rate Mortgage and reduces your interest rate by 2% the first year, 1% the second year and back to market rate the 3rd year.
•The seller must pay the buy down with a seller concession. The exact amount is based on the interest rate and loan amount but roughly it is 2.25% of the loan amount. (see example above)
•The seller concession then goes into an escrow account and is used to pay the interest difference the first 2 years.
•In our current market, sellers are willing to pay seller concessions to get their homes sold. If I were a seller, I would advertise this on my listing.
•If you refinance before 2 years you get a principal reduction for any of the seller concessions you have not used so you don’t lose the money.
•If you used the same amount of seller concessions to do a normal buy down, you would only be able to buy the rate down an estimated .5% - .625%.
•If you used the seller concessions to reduce the purchase price you would only save $50 - $60 a month on your payment.
In my opinion this is a great option right now. It will help sellers be able to sell their homes faster and will allow buyers to be able to afford the payment while we wait on inflation to go down. I am not sure exactly when this will happen but know once inflation goes down, we should see interest rates drop and think most people will be able to refinance their home before their 2 year period is over.