A few decades ago this kind of loan was popular. Today it is back in favor. The temporary buydown mortgage allows for an interest rate that is lower than the prevailing interest rate at the beginning of the loan period. Actually the main reason for its revival is ofcourse because many interested homebuyers are finding it almost impossible to qualify for a loan to buy a home.

How is this done? Well, initally it is bought down with a sum of money paid at closing. This makes the loan more affordable for marginal home buyers. This initial cost of the buydown is usually paid by the individual home seller to make it possible for the buyer to qualify for financing, or by a home builder who is marketing new homes, or a corporation that is making extra efforts to accommodate an employee being transferred to a new community.

In a 2-1 mortgage the loan is substantially lower in the first year, then goes up in the second and by the third reaches the prevailing market rate. Today’s lending agencies are actually keeping the interest much lower in the first year and increasing the rate to much higher than the prevailing market from the third year, which will then remain so for the rest of the loan period.

This entry was posted on Saturday, December 24th, 2005 at 4:38 am and is filed under News. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.