Sellers no longer have complete control over transactions. Sellers need to put work into selling their homes again, which usually translates into money out of their pockets.

When you’re going through the negotiation process, the buyer’s first instinct will be to ask for a lower purchase price. However, that may not be the best move for anybody. As the savvy seller you are, you won’t accept that. Instead, offer the buyer a buydown. It will save them more money in the long run and can net you more money as well.

What Is A Buydown?

With a buydown, home buyers are able to buy themselves a lower interest rate which is excellent news since rates have increased at an alarming rate in the last few months. A buydown can make your monthly mortgage payment more affordable and also save you tens of thousands of dollars over the life of your loan.

There are different types of buydown programs that center around the length of time the interest rate would be reduced. For example, you could choose a 3-2-1 buydown where you pay a lowered interest rate for the first three years of your loan. Each year, the rate would increase by 1% until you hit year four, and your interest rate will remain the same until the loan is paid off.

You can also buy discount points which will reduce your interest rate for the life of the loan. This can be a significant expense upfront - the amount you’ll have to pay depends on the amount of money you’re borrowing - but the savings can be huge.

How Much Will A Buydown Save Me?

You’d be surprised how much savings you’d get by reducing your interest rate. Let’s say you’ve convinced the seller to give $14,000 in seller concessions. You can use those funds however you’d like. If you knocked $14,000 off the home’s purchase price, you would save a couple of bucks monthly on your mortgage payment – which is great. However, if you used that money to buy discount points or do a buydown, you’d save far more.

For example, if the home you’re purchasing is $600,000, that $14,000 buydown would reduce your monthly mortgage payment by about $100 per month and over $60,000 over the life of the loan.

When To Skip On a Buydown

If you plan to stay in your home for the foreseeable future, there is no better way to use seller concessions than on a buydown. But, if you are only going to be in the house for a few years, it may not be the best use of money. You’ll want to calculate a break-even point.

Your lender can help you with this, but basically, you’ll look at the upfront cost of the buydown and compare it to the amount of money you’ll be saving on interest per year. If you know that you’ll only be the home for five years, but the break-even point is eight years, a buydown is not going to benefit you.

Do You Have More Questions? If you have more questions about buydowns or anything else real estate-related, please let us know. We are here to help!