The housing market has been very competitive this year. Interest rates have increased exponentially, causing borrowers to think twice about proceeding with their mortgage applications. With that being said, many mortgage lenders are offering temporary rate buydowns. The team at Indigo Mortgage is here to explain rate buydowns and how they work.

Buydowns have become a common variable for mortgage lenders this year to help alleviate high mortgage rates; however, many borrowers may need to become more familiar with the process. For example, if a rate is seven percent today, and the borrower takes a 2-1 buydown in the first year, the rate is five percent, which is two percent lower than the starting rate. In the second year, the rate is six percent, then in year three, it goes back to seven percent for the remainder of the loan. The buydown concept can be a bit confusing at first. Luckily, the Indigo team has an actual temporary rate buydown calculator that will let the borrower know exactly what the cost is and what the rates will look like under the program. The homebuyer has the option of a one-year, two-year, or three-year buydown.

We want to caution borrowers to do their research before moving forward with a buydown. Not all lenders are upfront about their practices, and the buyer will pay for it in the long run. If something seems too good to be true, it most likely is. In many cases, the starting rate is artificially high, so the borrower is just buying down their own rate to a level that another lender could begin with. This is why shopping around for your home mortgage is important.

If you are in the market for a new home and are hesitant to buy due to the current high interest rates, reach out to the Indigo Mortgage New Mexico team. We have many options available to help you with a home purchase with a mortgage that works best for you.