3/2/1 Rate Reduction and Payment Plan Home Loan
The 3/2/1 Rate and Payment Reduction Plan Home Loan. This was introduced as the seller’s housing market is quietly shifting to a buyer’s market. With seller concessions making their 2022 debut. Higher interest rates are taking many buyers out of the market. Leaving more homes up for grab with less competition. With the market shift this has sellers lowering their prices and offering concessions to get their homes sold. Consequently the Rate Buydown offers help for both buyer and seller.
What Is A Rate and Payment Buydown On A Mortgage Home Loan?
- Using Rate Buydown is a way for a borrower to obtain a lower interest rate by paying discount points at closing. Discount points, ( Often Seller paid Concession ) also referred to as mortgage points or prepaid interest points, are a one-time fee paid upfront. In the case of discount points, the interest rate is lower for the loan term.
- Also popular seller’s concession is the 3/2/1 Buydown. This is because it reduces the buyer’s interest rate. This reduction by 3% the first year, 2% the second year and by 1% the third year makes for a very reasonable seller concession.
- Finally the 3/2/1 The Rate and Payment Reduction Plan is for FHA, VA, CONVENTIONAL loans. Example of a 2/1 buydown the first year of the mortgage, the borrower’s monthly payment is based off an interest rate that is 2% lower than the note rate. For the second year of the mortgage, the monthly payment is based off an interest rate that is 1% lower than the note rate. In year three, borrowers return to the full note rate and corresponding payment for the remainder of the mortgage term.
Mortgage rates are forecasted to continue to rise slightly or remain steady for the seeable future in 2023. So the Rate Buydown method can be a useful tactic to protect yourself against future short term hikes. First you discover which loan option is right for you. Then look at today’s rates and compare to what typical rates in the future may look like. Then determine if the buydown method could help you save.