WHAT COULD POSSIBLY GO WRONG? Mortgage Buydowns: A New Trend for 2023?

The National Association of Mortgage Brokers (NAMB) describes a mortgage buydown as a type of financing that provides lower interest rates for at least a few years of the mortgage. They’re typically offered by the home seller or builder who contributes to an escrow account that subsidizes the loan during the first few years.

In a 2-1 buydown, homebuyers can save on interest rates for the first two years of the loan but will pay the full interest rate at the time of signing for the third year. A 3-2-1 buydown operates under the same principle: lower payments for the first three years and full interest for the fourth year of the mortgage.

“I’ve seen this a lot in the past, and it’s a way for the consumer to be able to purchase the home they want when increased interest rates would make their mortgage payments too high,” Ernest Jones Jr, NAMB board president, told The Epoch Times. “If the buyer is willing to offer the seller more for their home, the seller will sometimes make concessions in the form of a buydown. However, the home still has to appraise for the higher amount.”

2007-08 was a painful example of what happens when lenders and borrowers use gimmicks to get borrowers into homes they can’t really afford, but the gimmicks never seem to end.