People might think that 8% mortgage rates will kill the real estate market, but they are one more thing that can be fixed with money.
Two popular strategies to lower the mortgage rate:
30-year fixed rate buydown: Paying one point, or 1% of the loan amount will lower the rate by 1/4%. It would take a few points paid to make a significant difference, and the home seller can contribute too. On a $2,000,000 purchase with 25% down and a loan amount of $1,500,000, the monthly payment is $11,006 at the 8% rate. But the payment can be permanently reduced to $9,358 per month (6.375%) by paying six points, for a savings of $1,648 per month! Hopefully the seller will contribute some or all of the fee.
2-1 temporary rate buydown: Paying 2.4 points will lower the mortgage rate by 2% in the first year, and then by 1% in the second year. With the same $1,500,000 loan, here’s how the 2-1 buydown looks:
In both of those examples, you have a fixed-rate 30-year mortgage. If you are more of a gambler and don’t want to pay any points, the other alternative is to get the 3/1 ARM that has a fixed rate of 6.25% for three years, and then the rate adjusts annually for the remaining 27 years.
Or you can buy a Toll Brothers home:
A side note on Toll Brothers. Their Del Mar Mesa tract where construction was getting underway? They did sell all of those homes.
even with a buy-down the sale price is higher ===>> higher selling costs; commissions, escrow fees, etc AND higher property taxes for the buyer??
Is the net price to the seller with a $90,000 buy down better than a $100,000 lower asking price??
Thanks Don. The seller proceeds would be about the same in your scenario.
I’m just trying to offer an alternative in case a seller only has one offer to consider, and it includes a buydown. Some buyers won’t qualify at today’s full rate, which by the way has dropped 1/2% in the last two days!!!