The Los Angeles Times reports that sellers are offering mortgage buy-downs to buyers, which consists of the seller paying money to the buyer’s lender to lower the mortgage rate.
To make their houses more attractive to buyers as a financial proposition, sellers can offer to lower buyers’ long-term monthly mortgage expenses. The sellers achieve this by paying money upfront to the buyers’ lender to reduce the interest rate. The lower rate continues for the life of the loan.
In the article, Kenneth Harney explains that the “reduction might cost the sellers two or three ‘points’ — a point is 1% of the mortgage amount — and produce a reduction in the buyers’ note rate of one half of a percentage point. The points paid by the sellers represent interest paid in advance. A larger cash payment of points would produce larger rate reductions.”
Learn more about mortgage buy-downs: Mortgage buy-downs can spur home sales.