Today, it is possible to negotiate mortgage reduction points, which encompass various closing expenses. If the market were more competitive, these sellers would have been more inclined to entertain compromises than they currently are. Enthusiastic sellers, reduced prices, and decreased competition frequently result in elevated interest rates. Despite the presence of positives and alternative solutions, purchasing a home in environments with higher interest rates can still pose challenges.

Homebuyers should understand that there is an alternative to buying points. It can significantly lower the interest rate on your mortgage payment for the first several years. It can help combat these higher interest rates, and it’s called a buydown 3-2-1.

What’s the Difference Between a 3-2-1 Buydown and Buying Discount Points?

The overall duration of the loan, from 0.5 to 0.125 points percentage, is generally lower on the interest rate, with the possibility of purchasing permanent buydowns as a points discount. During the first three years of your loan term, you can lower your interest rate by paying off the entire points percentage. To achieve this, you need to be aware of the timing and rate adjustments, and you can lower your rate by using temporary 3-2-1 buydowns during the first three years of your loan term.

Over the course of time, this translates to a substantial amount of money saved. Additionally, it is noteworthy that a 30-year mortgage with a fixed interest rate can save you half a percentage point. Another appealing advantage is the savings of 3 percentage points in the APR. However, this is the point at which you should carefully consider and evaluate your alternatives.

Typically, breakeven is generally achieved around five years into your home loan. At this point, the saved money from the discount rate of interest on the permanent mortgage outweighs the upfront costs you paid to the seller for that discount. If you plan to stay in your home for a long time, buying mortgage points can be a way to go.

It is important to consider an additional item when deciding whether to refinance the loan you have built up for as long as the remaining years on your mortgage. This is because the interest rate will become permanent after the three-year period on the 3-2-1 buydown ends. It is crucial to make sure that you are comfortable with locking in your interest rate.

Considering all of this, the 3-2-1 buydown remains a highly appealing choice for buyers during periods of high interest rates.

To begin, contact APM today. With every choice, we can explain the amount of money you could save by examining the different situations with you. APM is constantly available to guide you through these significant choices, which is why we are familiar with them.

What Is a 3-2-1 Buydown?

The initial interest rate on your mortgage will temporarily decrease by 3 percentage points in the third year, 2 percentage points in the second year, and 1 percentage point in the first year through a mortgage buydown.

If you decide to buy a 3-2-1 buydown mortgage, the loan term will be concluded with a rate of 5% in year three, 4% in year two, and 3% in year one, while the agreed-upon note rate remains at 6%. It is worth noting that securing your mortgage at an annual percentage rate (APR) of 6% is a significant advantage given the current interest rate environment.

This program was created to give buyers a little breathing room when higher interest rates threaten to derail their dream of homeownership. A 3 percentage point difference in your mortgage loan can make a significant impact on your monthly payment.

You may have used up all the funds in your emergency or savings account to pay for these expenses, but you can replenish them by using a temporary buydown like a 3-2-1 buydown, which can save you money. It is important to remember that moving expenses and closing costs can be very expensive, including the down payment. Additionally, this program can also free up cash for you after purchasing a home at a critical time.

Instead, wanting to max out your credit cards on these items can negatively affect your credit score, which in turn impacts your ability to save money. Additionally, it can hinder your ability to make upgrades, repairs, or furniture purchases for your new home using your savings.

How Can I Use the 3-2-1 Buydown to My Advantage?

The mortgage industry can undergo significant changes in a span of three years. It is possible to witness frequent fluctuations in daily and weekly mortgage rates. Upon the completion of the program after three years, it can also enable you to refinance. The 3-2-1 buydown can assist you in navigating the current rise in interest rates. As long as you possess at least 20% equity in your home during that period, you can contemplate refinancing to obtain a more favorable long-term rate.

Considering the mortgage rate you initially secured, you’re still in a favorable position if rates rise. The future actions of the Federal Reserve remain uncertain in three years, but it is expected that 30-year fixed rate mortgages will be lower during that period.

This makes a 3-2-1 temporary buydown a mutually beneficial solution for homebuyers!

Who Pays for a 3-2-1 Buydown?

Real estate investing often allows buyers to incentivize them on their home, while also achieving the full asking price. This is often a popular concession among sellers who are eager to sell for another reason. A buydown 3-2-1 can be paid for by the lender, mortgage, or homebuilder.