Are you interested in buying a house or refinancing your current mortgage but not totally sure how you’ll also pay for those minor home repairs and improvements your new home needs? Or how you’ll be able to afford those fancy new appliances you really want? What if there was a way to ease into your new mortgage payment that allowed you to make those improvements or buy those appliances?
The Buydown Loan from New American Funding is the answer.
With New American Funding’s Buydown Mortgage, you could get a lower payment rate on the first year of your mortgage. In fact, New American Funding has loans that offer a reduced payment rate in the first year, the first two years, and even the first three years of your 30-year fixed-rate mortgage or your 15-year fixed-rate mortgage.
The best part? There’s no extra cost to you. You don’t pay anything extra to lower the payment rate on your mortgage for the buydown period. It’s our way of helping you get settled into your new home or new home loan and set you on a path of financial success.
What is a Buydown Mortgage?
As a potential borrower, you may be eligible for a new fixed-rate loan from New American Funding that could reduce your first-year, second-year, and third-year payment rate on a 30-year loan. There are four buydown options to choose from:
- 1-0 Buydown: A payment rate 1% lower than the note rate for the first year on a new loan
- 3-2-1 Buydown: A payment rate 3% lower than the note rate for the first year, a payment rate that is 2% lower than the note rate in the second year, and a payment rate that is 1% lower than the note rate in the third year on a new loan
- 2-1 Buydown: A payment rate 2% lower than the note rate for the first year and a payment rate that is 1% lower than the note rate in the second year on a new loan
- 1-1-1 Buydown: A payment rate 1% lower than the note rate for the first three years on a new loan
With each of these loans, your payment rate is lower than it will be for the rest of the loan. That allows you to save each month and/or put that money to good use.
Buydown Mortgage Benefits
- Ease into your mortgage payments
- More affordable mortgage payment before buydown payment rate expires
- More time to pay down bills, buy new appliances, or make upgrades to your home
- Add to your savings account
New American Funding's Buydown Mortgage could save you money when you need it the most. A New American Funding Loan Officer can help to determine if this loan program is right for you and if you meet the eligibility requirements.
Buydown Mortgage Options
- 30-year fixed-rate purchase or no-cash-out refinance
- 15-year fixed-rate Conventional mortgage
- Available on Conventional, FHA and VA loans
- May be primary residence or second home (depending on loan program)
- Adjustable-rate mortgage may be available in certain circumstances
New American Funding’s Buydown Mortgage vs. Buying Points
While New American Funding’s Buydown Program is no cost to the borrower, there is also a term in mortgage lending called a “mortgage rate buydown.” A mortgage rate buydown is when a borrower pays an additional charge (called a "point") in exchange for a lower interest rate and lower payment on their mortgage. This one-time fee is paid at closing by the borrower. This is called “buying points.” New American Funding offers this to its customers as well.
There are advantages and disadvantages to buying points. Let’s take a look at those:
Are There Different Types of Mortgage Rate Buydowns?
Mortgage rate buydowns are typically split between permanent buydowns and temporary buydowns, with mortgage lenders offering specific options that fall under these categories. With these options, the borrower pays some amount upfront in exchange for the lower mortgage rate.
With New American Funding’s Buydown Mortgage, a borrower can get a lower payment rate without having to pay any additional money upfront or over the life of their loan. New American Funding offers potential homeowners three buydown options that can lower interest rates for up to the first three years on their loan.
What is the Difference Between Permanent and Temporary Buydowns?
Permanent buydowns offer borrowers an opportunity to get a lower interest rate over the life of their loan. This typically requires buying more mortgage points upfront. If you are interested in buying down your interest rate, the typical process is that one discount point equals 1% of the total amount that will be financed.
Under usual circumstances, mortgage points decrease your interest rate in increments of 0.25%. As an example, let’s say you qualify for a 4.25% interest rate. Paying one mortgage point would typically lower your interest rate to 4%.
Temporary buydowns offer lower payment rates early in a mortgage term, depending on the terms of the buydown. For example, a 2-1 buydown gives borrowers a low payment rate for the first year of the loan, a somewhat higher payment rate for the second year, and then the full payment rate for the third and later years.
New American Funding’s Buydown loan is a temporary buydown as it lowers the payment rate for a shorter period of time than the full 30 years, but doesn’t require the borrower to pay for it upfront.
Is a Buydown Mortgage Right for Me?
It depends on your financial situation and what makes the most sense for you and your family. If you are interested in a lower initial payment, a Buydown Mortgage from New American Funding may make sense for you.
Is a Permanent Buydown Right for Me?
When it comes to buying mortgage points, there are different considerations, such as
- How long you intend to keep your home
- If you anticipate making more money in the future
- When you may break even on your buydown
Talk to your mortgage lender to see if a buydown loan is the right option for you.
Are There Disadvantages to Buying Mortgage Points?
Although mortgage rate buydowns have many advantages, they might not be right for everyone.
- Borrowers who do not intend to keep their home past their breakeven point may lose money by purchasing mortgage points
- Some borrowers may not be able to afford the initial upfront payment of discount points
- Buying mortgage points may divert funds that may be used for a higher down payment on a home or initial home improvement projects
Are Mortgage Points a One-Time Fee?
Yes, borrowers pay mortgage points at the closing of the loan to lower their interest rates. The mortgage lender will determine the amount of mortgage points a borrower is able to purchase.
Are Mortgage Points Tax Deductible?
Because points are prepaid interest, it is possible to deduct mortgage points as home mortgage interest. Contact your tax advisor for more information.
Depending on your situation, a Buydown Mortgage from New American Funding or buying points on your loan may make financial sense. Give the mortgage team at New American Funding a call to learn more about our Buydown Loan and how it might be beneficial for you and your finances, as well as more about buying points if you’re interested.