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I’ve been hearing a lot of Realtors and mortgage professionals saying the phrase, “Marry the house and date the rate.” It’s cute, right? Sure, but people have been beating this drum for a while now and it’s a bit played out.
If you haven’t heard this, it means that if you’re buying, don’t worry about what the interest rate is right now because you can temporarily “buy it down” and they’re definitely, kind of, almost entirely certain that rates will go back down. Once they do, you can refinance into a lower rate and lower your monthly payment.
Many industry experts over the last nine months have been saying that inflation would go down and rates would be somewhere between 5% and 6% by May. Those spouting these predictions were vocal proponents of rate buydowns. The most common product has been a temporary, 2-1 buydown which means that the first year your rate is 2% lower than your fixed market rate and 1% lower the next. Then in the third year your rate reverts back to whatever rate you locked in at the time of purchase.
Let me be clear. I am not against utilizing rate buydowns. I actually think they’re a fantastic option if you can afford your payment if the rate goes up and stays up. What I’m uncomfortable with is people using this product without truly understanding the repercussions. I’m also uncomfortable with people talking about being able to refinance before the third year with near certainty.
If a person using this product is well aware of the consequences of potentially being unable to refinance due to a.) the rates being higher than where they were when they purchased the home or b.) not having the required equity to qualify for a refinance, then go for it! If they purchased this home knowing full well that they could comfortably afford their payment when their rate reaches 7.5%, then it is a wonderful product. Especially if the seller pays for it.
That being said, if a buyer purchases their home with any fear of their payment causing financial stress at the three year mark I’d say the money is better spent on a permanent rate buydown. It may cost more, but if you plan on staying in your home for more than 5 years it probably make more sense.
You want to own your home, not the other way around. If you have any questions about rate buydowns please don’t hesitate to reach out to me. I work with several great lenders who offer a variety of products and are very knowledgeable.
David Hall, DRE #01934452 Coldwell Banker Realty Dhallsellsre@gmail.com Cell 916.607.1577
