Updated over 3 years ago on . Most recent reply
Is Temporary Buydown the hottest purchase option right now?
The RE market has been buzzing with news around the keyword; temporary buydown. Some experts believe that the hottest and most talked about purchase option right now is the Temporary Buydown.
They assert that it is a great tool to help ease a buyer into their new home and offer some financial flexibility for the first few years of the loan. However, the question remains: Is it a better option than paying discount points? That depends and is a great conversation to have with borrowers.
Online articles argue when you buy discount points, you decrease the monthly payment, but it takes time for that upfront cost to pay off - taking 5-10 years to recoup the investment. Additionally, the actual reduction in rate received by paying a discount point per Bankrate is about .25%. Not even half a point!
If the long-term prospect for rates indicated, they would continue to climb, meaning the average borrower would stay in their new loan for 5-10 years +, a discount point might make the most sense. However, many respected parties anticipate rates may fall in the future. If so, a Temporary Buydown that reduces the rate by a whole point a year, offering a significantly reduced payment to the consumer, could be best. If borrowers refinance in the first year + of their new loan, those discount points could be wasted. Whereas if the borrower did a buydown, funds remaining in their buydown account help reduce the loan's payoff.
So, if rates were expected to rise, a discount would be the way to go. With rates projected to decrease, a buydown may make more sense. Educate your borrowers and help them make the best decision for them.
What are your thoughts on the subject? Let me know the comments, please.