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IPFS News Link • Housing

Mortgage Buy-Downs - A Worrying New Trend For 2023?

• Zero Hedge

We can't help but get a sense of deja-vu-all-over-again when we read about the latest mortgage industry 'gimmick'...

What happens when these 'buy-downs' reset at even higher rates?

And how does this allow the housing market to 'correct' as Fed Chair Powell wants?

Authored by Mary Prenon via The Epoch Times,

With mortgage interest rates currently hovering around 7 percent, many lenders across the country have seen a resurgence of the mortgage buy-down - a plan that allows potential homeowners to save money on monthly mortgage payments.

The National Association of Mortgage Brokers (NAMB) describes a mortgage buy-down as a type of financing that provides lower interest rates for at least a few years of the mortgage. They typically are offered by the home seller or builder who contributes to an escrow account that subsidizes the loan during the first few years.

In a 2-1 buy-down, homebuyers can save on interest rates for the first two years of the loan, but will pay the full interest rate at the time of signing for the third year. A 3-2-1 buy-down operates under the same principle: lower payments for the first three years and full interest for the fourth year of the mortgage.

"I've seen this a lot in the past, and it's a way for the consumer to be able to purchase the home they want when increased interest rates would make their mortgage payments too high," Ernest Jones Jr, NAMB board president told The Epoch Times.

"If the buyer is willing to offer the seller more for their home, the seller will sometimes make concessions in the form of a buydown.  However, the home still has to appraise for the higher amount."