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Home / Blog / Mortgage Rates / Temporary Subsidy Buydown Mortgages

Temporary Subsidy Buydown Mortgages

November 10, 2017 By Mary Catchur

low interest rates with Buydown MortgagesMost of the time, mortgage borrowers have the option to save money by buying down their mortgage, either permanently or temporarily. Although mortgage buydowns can help many homeowners, each borrower should determine whether a mortgage buydown is appropriate for their situation by reviewing the pros and cons.

One of the most common mortgage buydowns is a temporary subsidy buydown mortgage, which we explore in detail with this article.

Mortgage Buydown

In general, a mortgage buydown lowers your monthly payment by buying points (also known as “discount points”) in exchange for a lower interest rate.

Depending on the transaction, the lender may offer a 0.25% interest rate reduction on the first point you buy (a point is 1% of the home’s purchase price).

On a $200,000 mortgage, you could pay $2,000 to reduce your interest rate .25%. If, for example, buying a point lowered your interest rate from 4.25% to 4.00%, you would save a little over $10,000 in interest on a 30-year fixed rate mortgage.

Related: Should You Buy Points to Lower Your Mortgage Interest Rate?

Temporary Subsidy Buydown Mortgage

A temporary subsidy buydown mortgage helps buyers by lowering the interest rate at the beginning of the mortgage, then it remains at the full interest rate for the remaining term of the loan. Temporary subsidy buydown mortgages are especially helpful for homebuyers who have higher earning potential in the near term, and only need the monthly payment lowered for the first few years.

With a temporary buydown mortgage, points are paid to prefund an escrow account. The escrow funds are used to subsidize the mortgage’s initial monthly payments.

The 3-2-1 buydown mortgage is one of the most popular options for a temporary buydown. Points are paid to lower the interest rate over the first 3 years of the mortgage (3% for the first year, 2% for the second year, and 1% for the third year).

There are 3 sources from which points can be paid with a temporary buydown mortgage:

  • Yourself. You pay for points to lower your interest rate.
  • Builder or developer. A builder or developer may reduce the buyers mortgage payment with a 3-2-1 buydown mortgage, for example, in which the builder pays for points during the first 3 years of the mortgage (3% for the first year, 2% for the second year, and 1% for the third year).
  • Seller. The seller pays points to lower the interest rate, which is built into the price of the home.

Sellers are occasionally willing to pay points for a temporary buydown mortgage to make their home more attractive to buyers, especially to buyers who would find the mortgage payment uncomfortable for the first few years.

Other popular temporary subsidy buydown mortgage include:

  • 2-1 buydown mortgage, which lowers the mortgage payment 2% the first year, and 1% the second year.
  • 1-0 buydown mortgage, which only lowers the mortgage payment 1% the first year.

Related: Permanent Buydown Mortgages

Marimark Mortgage

Marimark Mortgage is based in Tampa, Florida, and specializes in permanent buydown mortgages and temporary subsidy buydown mortgages.

We offer conventional home mortgages, FHA, VA and USDA mortgage options, refinance loans, and reverse mortgages. We’ve worked extensively with cash-out refinancing, and help clients to lower their monthly mortgage payments.

To get started with a mortgage to buy your next home, or to refinance your existing home, please fill out our Quick Mortgage Application, or contact us direct.

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Filed Under: Mortgage Rates Tagged With: mortgages

Opinions, estimates, forecasts and other views contained in this page do not necessarily represent the views of Marimark Mortgage or its management and should not be construed as an offer to provide financing at the rates or terms mentioned. Due to market fluctuations, interest rates are subject to change at any time and without notice. Interest rates are also subject to credit and property approval. Although Marimark Mortgage attempts to provide reliable, useful information, it does not guarantee that the information is accurate, current or suitable for any particular purpose. Information from this page may be used with proper attribution.

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