By paying extra at the time of closing you may be able to reduce the interest rate on your loan or buy-down your interest rate. The buydown can affect your interest rate temporarily or permanently with the use of discount points.
Temporary Buydowns
Borrowers pay interest payments in advance to reduce the interest rate of the loan for the first 2 or 3 years of the loan. One common type of temporary buydown is the 3-2-1 buydown which lowers the loan rate by 3% the first year, 2% the second year, and 1% the third year. The primary advantage of a temporary buydown is that the borrower may be able to qualify for a larger loan with the first years reduced rate, and if the borrower expects his or her income to increase, then the larger future payments may not be a problem.
Permanent Buydowns
Borrowers can pay for discount points to reduce the interest rate for the life of the loan. A discount point is equivalent to 1% of the loan amount, for example, with a $100,000 loan, one discount point would cost $1000. It usually requires 4 to 6 discount points to lower the rate by a full percentage point. This can be an effective way to save you money, but it...
To view and download this full PLR article, you must be logged in. Registration is completely free. Once you create your account, you will be able to browse, search & downlod from our PLR articles database of over "1,57,897+" on 1,000's of niches and 200+ categories without paying a penny. Click here to signup...
