Undeniably, the current market presents some challenges when it comes to interest rates. However, Debbie has outlined several strategies to mitigate the impact and potentially reduce both rates and monthly payments.
The first option involves higher down payment, to help reduce the interest rate. The second option is to buy down points, which effectively decreases the overall interest rate. Additionally, there’s the option of a temporary buydown, where the seller is able to help contribute. Ultimately, maintaining a strong credit score is crucial to securing access to the most advantageous interest rates.
Debbie provides an example of the temporary buydown option: if the fixed interest rate is 8%, a 2-1 buy down would result in a first year payment based on a 6% interest rate, 7% payment for the second year, and then 8% for the remaining life of the loan. The difference in payments during those first years with the reduced interest rate is covered by the seller at closing. This approach, popularized by builders in the 1980’s, allows the buyers to make reduced monthly payments for a year or more and the ability to refinance when the interest rates become more favorable. Most importantly, it provides the security of a rate that will not exceed, in this example, 8% for the duration of the loan. This temporary buy down option is available for primary and second home loans, not investment loans.