Should You Buy Down Your Interest Rate – Could a lower interest rate strategy benefit you and your home buying journey? How do temporary purchases differ from permanent ones?
Dave Bryce from Priority Home Loans explains what this means, the difference between the two and why you can benefit from it. If you’re buying a home and want a lower interest rate, ask your realtor or lender to lower the value with a seller’s agreement.
Should You Buy Down Your Interest Rate
If you are an agent looking to add this to your toolbox, please contact The Madrona Group or Dave Bryce.
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“The best way to find yourself is to lose yourself in the service of others.” ~ Gandhi [Recognized 3.5% Top Agent in the United States. ] [ Jason Fox was born in Everett, Washington and currently resides in Meadowdale, Lynwood, and has lived in various parts of the Puget Sound area. He has worked in real estate for 20 years in many different areas. From the CEO of a real estate CRM company, founder of 2 real estate marketing agencies, world-renowned real estate marketing blogger Jason Fox, Top Title Marketing, and Head of Transaction Services. ] [ Jason is now a well-known real estate agent, co-founder of The Madrona Group, co-owner of John L. Scott Ballard and John L. Scott Westwood. ] [ Active in the community, Jason is proud of Autism Speaks’ work to raise awareness about autism. She is passionate about this work because she has an 8-year-old son, Hudson, who is diagnosed with ASD. Jason is also involved with Neighbor’s in Need, Forgotten Children’s Fund, WELD Seattle, and Union Gospel Mission, which helps the homeless in the greater Seattle area. ] [ “My passion is being able to give back to the community that has given me so much.” ] [When he is not helping friends and family with real estate services, he enjoys being a father to his 4 children, Carter, Rowan, Tyler and Hudson, and being a husband to his wonderful wife, Sarah. Hiking, housework, cheering for the Seahawk’s, Mariners and Huskies and golf. ]There are a few costs to keep in mind when financing a home. Two of these costs are the points you can pay on the loan and the interest rate.
In many cases, it is possible to reduce the interest rate throughout the term of the loan by making small payments in the form of points. A lower interest rate can save you a lot of money.
To purchase a mortgage, borrowers pay an additional fee in the form of points (also known as “discount points”) in exchange for a lower interest rate on the loan.
Depending on the agreement, the lender may offer an interest rate reduction of 0.25% for the first purchase. (The point is 1% of the purchase price of the house.)
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On a $200,000 loan, you can pay $2,000 to reduce your interest rate by 0.25%. If, for example, buying the item drops your interest rate from 4.25% to 4.00%, you’ll save just over $10,000 in interest on a 30-year mortgage.
If you can reduce your interest rate by 0.25% by purchasing the first item, purchasing the second item will usually reduce your interest rate by another 0.25%.
For example, buying a second item can lower your interest rate by an additional 0.125%, saving you much less interest compared to buying the first item.
Lenders have different rates, so it’s important to shop around for the best deal when considering a home loan. Ask the lender for a rate sheet and compare it to other lenders to see which one will save you more money.
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There are many factors to consider when deciding whether a foreclosure loan is best for a particular borrower.
One of the most important factors to consider is how long you will live in the home. Most home equity loans take 3-6 years to pay off, so unless you plan to live in the home for at least 5 years, most people probably shouldn’t buy equity.
On the other hand, if you’re moving into your dream home and don’t plan to move for a long time, you can save a lot of money over the life of the loan by buying the loan amount.
When buying a home, you should calculate savings on the cost of the loan, based on how long you plan to live in the home. You don’t want to pay more interest than you have to. Your mortgage broker can help you determine whether the savings outweigh the costs based on your personal situation.
What Lenders Consider When Determining Your Interest Rate
We work with many lenders to provide our clients with the best loan to fit their needs and we specialize in conventional, FHA, VA, USDA, refinance loans and reverse mortgages.
To start the mortgage application process and get pre-qualified and approved, complete our Express Mortgage Application or contact us directly.
Marimark Mortgage’s newsletter will keep you informed of important developments in the mortgage industry that may affect your finances.
We focus on ways to save money on your current and future debt. And we always share information with our customers because we believe that informed buyers are better buyers.
How To Buy Down Your Mortgage Interest Rate?
Real estate agents and other industry professionals will have a constant stream of information to help them better serve their clients.
Opinions, estimates, projections and other opinions contained on this page do not necessarily reflect the views of Marimark Mortgage or its management and should not be construed as an offer to secure financing at the rates or terms indicated. Due to market volatility, interest rates may change at any time without notice. Interest rates also depend on loan approval and ownership. Although Marimark Mortgage endeavors to provide reliable and useful information, it does not guarantee that the information is accurate, current or suitable for any purpose. Information from this page may be used as appropriate. Posted by Kevin Copeland on Friday, August 5, 2022 at 12:45 PM Kevin Copeland / August 5, 2022 Comments
A niche strategy works best in buyers’ markets—markets where there are more sellers than buyers. This means that supply exceeds demand. That’s not to say it won’t work in a seller’s market, it’s just more difficult. A buyer’s market works best because buyers often have bargaining power. A seller can only get one offer on their property and it can take a long time to get that offer.
So, without further ado, here’s the meat and potatoes of this particular strategy. This is called a seller buyback, or SBD for short.
Buying Down Your Interest Rate Temporary Vs Permanent With Dave Bryce
The whole idea of SBD is to give money back to the seller to keep the interest rate down. Most agents will try to negotiate to get money from the seller for recurring or one-time closing costs, but most don’t try to get money to lower the interest rate. Remember that the agent must make as much profit as possible to help the buyer get into the property.
Most mortgage agents and professionals will split the seller’s fee between underwriting fees, down payments and loans…many of them consider a fixed rate mortgage that significantly lowers your monthly mortgage payment and turns cash flow into cash flow.
Let’s take a look at the numbers the seller is buying, and then I’ll explain some of the nuances and benefits for everyone involved. In this example, let’s say a buyer makes an offer on a house for $300,000. The property has been on the market for a while, but the seller may not want to lower the price (or maybe he can’t because he’s going to break the bank).
The buyer pays a down payment of $60,000 and this is the only buy-to-let property on the market. The problem is that a low offer will work, but the seller is unlikely to lower the price.
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The interest rate that a buyer without SBD will receive is 4.0%. If the selling agent can only negotiate 10,000 SBD, the interest rate will be reduced to 3.25% for a 30 year loan.
Look at these numbers. As a buyer, you always want to get the lowest possible price, but that’s not always the case. As mentioned earlier in this example, the seller cannot simply lower the price to the point where you can close the deal. so what are you doing
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