Why don’t I love rate buydowns?

I will start buy saying, I don’t love rate buydowns when borrowers pay for them but it can certainly add more payment relief than a price reduction if the seller pays.

Let’s look at some quick math and I’ll explain both:

Seller Paid Buydown—Here’s our scenario, $800K asking price and borrowers putting 20% down.  They either get $25K to buydown the rate or they get $25K off the price, the results…

$25K to buydown the rate gets them to 5.625% and a mortgage payment of $3,684

$25K off the price gets them a payment of $3970

Buyer Paid Buydown—Same scenario…but first, a buyer is only allowed to buy their rate down, so much…

              Paying an additional $9000 in buydown costs lowers the rate .375% and saves $150 a month

              This means it takes 5 YEARS just to break even

Buyer Paid Buydowns rarely work out for consumers, and its why you heard, if you were in attendance, why I am so adamant about clients having a true explanation of what’s best for them.  Unfortunately, something not everyone (MOST) do not properly explain.