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At a time when mortgage rates<\/a> have increased sharply, home shoppers may be able to lock in better terms with a rewarding seller concession: interest-rate buydowns. <\/p>\n<\/div>\n A seller-paid rate buydown can typically help buyers save more money on monthly mortgage payments than if they negotiated a lower purchase price. It can also be cheaper for the seller to pay for discount points than to reduce the home price.<\/p>\n<\/div>\n Buyers received a record share of seller concessions \u2013 such as mortgage-rate buydowns \u2013 during the fourth quarter of 2022, according to Redfin<\/a>, a real estate brokerage. And while rate buydowns can be a thrifty way to close the deal, they do come with their risks. Here’s what you need to know about seller-paid rate buydowns, so you can decide if this strategy can help you buy or sell a home this year.<\/p>\n<\/div>\n A seller-paid rate buydown is when the seller offers concessions that reduce the buyer’s mortgage interest rate, either for the duration of the loan or just for the first few years. This can happen in one of two ways: The seller contributes to the buyer’s closing costs, or the seller pays for a temporary rate buydown.<\/p>\n<\/div>\n With a permanent rate buydown, the seller pays a portion of the buyer’s closing costs that are used toward buying mortgage discount points<\/a>. Each point reduces the rate by about 0.25 percentage point, depending on the lender, and costs 1% of the loan amount. So if you buy a $500,000 home with a 20% down payment, your mortgage amount would be $400,000, and each point would cost $4,000. <\/p>\n<\/div>\n Here’s how mortgage points might impact your monthly principal and interest payment and lifetime loan costs in this example on a 30-year mortgage using our mortgage calculator<\/a>:How Seller-Paid Mortgage-Rate Buydowns Work<\/h2>\n<\/p>\n
Option 1: The Seller Offers Money Toward Closing Costs<\/h3>\n<\/p>\n
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