AD Mortgage
  • Programs
  • Quick Pricer
  • Services & Tools
    • Broker Support
    • Partner Portal
    • Concierge Service
    • AD Appraisal Center
    • AD Studio
  • Resources
    • Documents & Forms
    • Announ­cements
    • Events & Webinars
    • AD Learning Center
    • Blog
  • Why Us
    • About A&D
    • Turnaround Times
    • Associations
    • Press about A&D
    • Awards
    • Contacts
  • My Mortgage
(855) ADLOANS
  • Partner Login
Become a Partner Become a Partner

The Basics of Temporary Rate Buydowns

AD Mortgage
A&D Mortgage News
Share this news:
Facebook Facebook LinkedIn LinkedIn
Print this Page:
Print Print

Temporary rate buydowns are a popular option for mortgage brokers looking to reduce their clients’ interest rates. In this blog post, we will cover the basics of temporary rate buydowns, including the different types available at A&D Mortgage and their advantages and disadvantages.

What is a Temporary Rate Buydown?

A temporary rate buydown is an agreement between a borrower and seller or third party that allows the borrower to lower their interest rate for a certain period of time. Typically, this period lasts several years. During the term of the buydown agreement, borrower pays less than what they would normally pay.

Types of Temporary Rate Buydowns offered by A&D Mortgage

  • 3-2-1 buydown: A buydown of 3% in the first year, 2% in the second year, 1% in the third year, then back to the original locked rate in the fourth year for the duration of the term.
  • 2-1 buydown: A buydown of 2% in the first year and 1% in the second year, then back to the original locked rate in the third year for the duration of the term.

How do Temporary Rate Buydowns Work?

The funds paid on behalf of the borrower at closing are used to temporarily lower the interest rate for a specified period of time.

Advantages

The main advantage of using temporary rate buydowns is that it can reduce your clients’ monthly payments, allowing them to free up cash flow in order to cover other expenses.  If the loan is paid off during the buydown period, the borrower will receive the funds deposited for the temporary buydown.

Disadvantages

Ongoing affordability is the primary disadvantage. Once the initial rate period ends, your monthly payments could be substantially higher than what you’re used to. That could be problematic if your income has dropped since purchasing the home.

Conclusion:

Temporary rate buydowns can be an effective way for mortgage brokers to reduce their clients’ interest rates and allow them more flexibility with their budgets over a set period of time. While there are certainly advantages associated with this strategy, it’s important that you discuss all potential pros and cons with your clients.

Press Center

Read all news Read all news
A&D Mortgage Launches Temporary Rate Buydowns
A&D Mortgage Launches Temporary Rate Buydowns
December 21, 2022 A&D Mortgage Launches Temporary Rate Buydowns
Non-QM Minimum FICOs Increased
Non-QM Minimum FICOs Increased
December 22, 2022 Non-QM Minimum FICOs Increased
Unconventional Wisdom for Mortgage Brokers: Unlocking the Potential of Conventional Mortgages
Unconventional Wisdom for Mortgage Brokers: Unlocking the Potential of Conventional Mortgages
May 31, 2023 Unconventional Wisdom for Mortgage Brokers: Unlocking the Potential of Conventional Mortgages
April's Existing Home Sales Decline 3.4%
April’s Existing Home Sales Decline 3.4%
May 30, 2023 April’s Existing Home Sales Decline 3.4%
Read all news Read all news

Weekdays 8 am — 7 pm (EST)

  • (855) 235-6267
  • info@admortgage.com
  • Broker Support
All Contacts

Policies

  • Website Accessibility
  • Privacy Policy
  • Important Disclosures

Events

  • Upcoming Events
  • Past Events

Career

  • Career Center
  • Available Positions
  • Employee Referral Program (PDF)

Borrower info

  • My Mortgage
  • Retention / Covid 19 Assistance

Feedback

  • Got an Idea! Let us know!
  • A&D Mortgage Service Feedback Form
  • Consumer Complaints
  • Suspicious Activity

Your email

Fill out this field
Thank you, you're successfully subscribed

1040 South Federal Highway, Hollywood, FL 33020

NMLS # 958660 — NMLS Consumer Access

2023 © A&D Mortgage LLC