Is a Buydown Mortgage Right for You?
November 3, 2009 by Customer Care
Is a Buydown Mortgage Right for You? by Des Moines Real Estate Experts RE/MAX Real Estate Concepts
A buydown mortgage may be the key to affording your dream home. There are many different types of mortgage loans available for todays home buyer.
Permanent and temporary buydown mortgages are financial tools used by lending institutions to reduce the interest rate on a mortgage loan. With this type of financing extra points (sometimes called discount points) are paid upfront at closing. In simple terms, a point is equal to one percent of the principal loan amount total. A buydown is an upfront payment. The purpose of this payment is to enable the financial institution to lower the monthly payments. A buydown is sometimes used as a tool to enable the buyer to qualify for a mortgage.
Buydown mortgages have many benefits.
Temporary buydown mortgages appeal to the home buyer who has prospects for a substantial income increase in the next few years. For example a spouse may currently be in school, but upon graduation will have excellent employment prospects. A temporary buydown mortgage allows the buyer to make lower monthly payments during the first few years of the loan. During these years the interest rate is lower than the actual mortgage loan rate. This results in lower monthly payments early on in the life of the loan. Buyers with lower monthly incomes can qualify for larger loans with this strategy. In general, a buydown mortgage allows the buyer to own more house for the money. In some cases it is the best way to qualify for any loan because of the lower interest rate.
A permanent buydown mortgage reduces the interest rate of the mortgage for the entire life of the loan. This reduction of the interest rate will cost the buyer several points at closing.
There are many financing options available to home buyers in the Des Moines area.
Free information about buying, selling or investing in Des Moines real estate is available. To request free information about the Des Moines real estate market and everything Des Moines real estate visit us 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.
Filed under Des Moines Real Estate Blog
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