Can a Mortgage Rate Buy-Down Save a Deal?

As home sales slow in some markets, more sellers may consider hooking potential buyers by offering to lower their mortgage rate. Mortgage assistance may help offset rising prices and the much-predicted looming rise in mortgage rates.

Some real estate professionals have begun touting “seller-assisted, below-market-rate financing” on for-sale signs outside of listed homes. They’re also offering interest rate buy-downs, a marketing technique most commonly used in new-home sales by builders.

Some sellers are offering to lower buyers’ long-term monthly mortgage expense—for the life of the loan—by paying money upfront to the buyers’ lender to reduce the interest rate. For example, the seller may pay two to three points on the loan; a point is 1 percent of the mortgage amount. This would reduce the buyers’ interest rate by about one of half of a percentage point. When sellers pay points, they’re paying interest on the loan in advance.

From 2006 to 2009, mortgage rate buy-downs on resales were common, says David H. Stevens, chief executive of the Mortgage Bankers Association.

While rate buy-downs aren’t always the best move for sellers, housing experts say it’s one option that real estate professionals, sellers, and buyers may want to explore in the interest of saving a deal.

Source: “Mortgage Buy-Downs Can Spur Home Sales,” Los Angeles Times (July 27, 2014)