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A buydown by name sounds
like a good investment. But
do you really know what it is? A buydown mortgage
is a
loan that has a discounted interest rate
that gradually increases over 1-3 years to
a set point determined between the lender
and the consumer.
By using a
discounted rate in the beginning of the loan, you can
qualify for more home. You have an advantage
because for the first few years, you’ll have lower
monthly payments.
This is a great
type of loan for first-time homebuyers or newlyweds who
will need to purchase all of the furnishings that go
into a new home. It’s also a wise choice for those
investing in a fixer-upper.
Using a buydown,
you’ll make a one-time lump-sum payment to the
lender. Sometimes, consumers don’t have the
initial cash to get a buydown. The lender can pay
this for you if you agree to a slightly higher interest
rate.
Some consumers
choose a 2-1 buydown. For instance, if you have a
7% interest rate your initial discounted rate would be
5% for the first year. During year two, it would
rise to 6% and then go to 7% every year
thereafter. You have to prepay the difference in
payments between the 5 and 7% interest rates the first
year and the difference between the 6 and 7% interest
rates the second year.
You may also want
to look into a compressed buydown where interest rates
change every 6 months instead of yearly. These are
less common but could work if you can afford it but just
need a more temporary break in price.
Information contained herein is deemed accurate and correct, but
no warranty is implied or given. Please consult
a financial advisor for specific advice pertaining to
your particular situation. © 2004 Apex Personal
Loans Store. All Rights Reserved.
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