What Is a Buydown Mortgage?

What Is a Buydown Mortgage? By Des Moines Real Estate Experts RE/MAX Real Estate Concepts

You must have heard about the term Buydown Mortgage and often wondered what it means. This article aims at providing you comprehensive information about what Buydown mortgage in Des Moines is all about. Read on to know more.

What is Buydown Mortgage in Des Moines?

Mortgage buydowns are programs where the mortgage payments include both principal and interest. Due to this reason as and when each payment is made by you your mortgage balance becomes smaller and not higher. Payments are based on lower interest rates over a certain specified period. The seller or the buyer will pay up the difference in the note rate and lowered interest rate in cash. It works like a subvention that helps you make your monthly loan mortgage payments. It does not involve negative amortization. Moreover it is more profitable than an adjusting loan that gives options of negative amortization like ARM options.

Types of Buydown Mortgage in Des Moines 

There are two most popular types of buydown mortgages. They include the 2-1 buydown mortgage and the 3-2-1 buydown mortgage.

The 2-1 buydown mortgage is a completely amortized mortgage for a term of 30 years. For the initial two years the interest rate augments by 1%. For the balance period of the tem of 30 years the interest rate remains fixed. A 2-1 buydown payment usually requires a 5% down payment by lenders. The annual savings due to the lower interest rates have to be paid in lump sum by the seller or buyer to buy down the interest rates and payments for two initial years.

The 3-2-1 buydown mortgage is also a mortgage amortized in a period of 30 years. The interest rate is increased by 1% each year during the first three years. The interest rate remains fixed for the balance period of the term of 30 years. The savings of the first three years due to the lower interest rate are paid in lumpsum by the seller or buyer to buy down the interest rate and payment for the initial three years. Lenders generally ask for a 10% down payment for a 3-2-1 buydown mortgage.

Benefits of Buydown mortgages in the Des Moines 

These buydown mortgages will keep payments low for the initial period of 2 or 3 years depending upon the type of buydown mortgage adopted. It is suitable for borrowers whose income is expected to increase after this initial period due to getting a job after studies or a spouse returning to work after a break.

There is a lot of free information available to you about buying, selling or investing in Des Moines real estate. For complete information about the Des Moines real estate market including current homes for sale, property values and more please visit the most complete website online dedicated to everything Des Moines real estate at Real Estate with RE/MAX. Please feel free to contact us with any of your real estate or mortgage related questions and we will be more than glad to answer your questions. Call us at 1-800-708-5890 or email us at dsm@realestateconcepts.net.