Inspire Home Loans

UNDERSTANDING A Mortgage Buydown

A mortgage buydown reduces the interest rate resulting in lower payments, either temporarily or permanently. So how does it work? Mortgage buydowns are paid for by the lender, seller, builder or buyer by paying an upfront fee. A temporary buydown reduces your interest rate for the first few years, before returning to the full rate for the remainder of the loan term. You may also consider a permanent buydown which reduces your rate for the entire life of the loan. Let’s explore the most common types of temporary buydowns available: 1/0 Buydown: Your interest rate is reduced by 1% for the first year of your mortgage. Starting in year 2, your payment adjusts to the full rate (also called the note rate) for the remainder of the loan.

Example: FHA 30-Year Fixed Rate Loan with a 1/0 buydown.*

Interest Rate

Year

Monthly Payment

1

Saving $252 per month in year 1.

6% (7.126% APR)

$3,501

2-30

7% (7.126% APR)

$3,753

2/1 Buydown: Your interest rate is reduced by 2% in the first year and 1% in the second year. Starting in year 3, your mortgage payment adjusts to the note rate for the remainder of the loan.

Example: FHA 30-Year Fixed Rate Loan with a 2/1 buydown.**

Monthly Payment

Year

Interest Rate

Saving $492 per month in year 1. Saving $252 per month in year 2.

5% (6.982% APR)

$3,261

1

2

6% (6.982% APR) 7% (6.982% APR)

$3,501 $3,753

3-30

SCAN ME

Interested in learning more about mortgage buydowns and how they can help you in your homebuying journey? Contact our team today!

SCAN ME

*Financing example is based on a 30 year fixed FHA loan with a 3.5% down payment and a minimum credit score of 620. Mortgage has a 1-0 Buydown with an interest rate of 7% (7.126% APR). Buyer must qualify for financing at the note rate of 7%. The interest rate is reduced to 6% for Year 1. Based on a sales price of $390,000 and a loan amount of $382,936 (including financed up front mortgage insurance), monthly principal and interest payments are $3,500.94 for Year 1 and $3,752.73 for Years 2 - 30. **Financing example is based on a sales price of $ 390,000 with a 3.5% down payment and a minimum credit score of 620. Mortgage is an FHA 30 year fixed loan with a 2-1 Buydown with a Note rate of 7% (6.982% APR). Buyer must qualify for financing at the Note rate of 7%. The interest rate is temporarily reduced to 5% for Year 1 and temporarily reduced to 6% for Year 2 and is 7% for Years 3 -30. Based on a loan amount of $382,936 (including financed up front mortgage insurance premium), monthly payments are $3,260.73 for Year 1, $3,500.94 for Year 2 and $3,752.73 for Years 3 - 30. Payment includes monthly taxes, mortgage insurance and hazard insurance. HOA assessments are additional and not included in the above payment. Interest rates, payments, terms and availability of this loan program, and the sales price, are examples only and are a subject to change without notice. Interest rates may not be available at time of loan commitment or closing. Loans are subject to credit approval. Restrictions and conditions may apply. Loan program is available through Inspire Home Loans® Inc. NMLS# 1564276, 4695 MacArthur Court, Suite 350, Newport Beach, CA 92660. www.inspirehomeloans.com. Licensed in AL, AZ, CO, FL, GA, IN, KY, MI, NC, OH, SC, TN, TX, UT and by the Department of Financial Protection and Innovation under the California Residential Mortgage Lending Act, Nevada Mortgage Company Licensee # 4845, 10655 Park Run Drive, Suite 140, Las Vegas, NV 89144. Telephone 702-605-1504; in Washington d/b/a Inspire Home Mortgage under WA license # CL-1564276. Additional license information available at NMLS Consumer Access: www.nmlsconsumeraccess.org.