Stop Permanent Rate Buydowns!
I’m about to make some enemies for my competitors and some real savings out there who are giving you the wrong advice without understanding the math right now, the big hype in our businesses. Make an offer to the seller. Don’t reduce the sales price. Have them give you a credit to buy a lower interest rate.
Don’t do it unless understand the math. Stop permanent rate. Buy downs. Unless you understand the math. Let’s jump right into it. Let’s say you’re buying a home. This listed for $800,000 and mainstream media would say don’t take a price reduction. Have the seller buy you a lower interest rate. So let’s say put putting on 10% borrow 720 today.
The 30 year fixed 5.375 APR / 5.841. Interest rates can do change daily. It’s going to cost the seller about $18,000 to buy that interest rate for you. Monthly Payment 4031. Let me go to the flipside. Instead of getting the pay a lower rate. Reduce the sales price the same 18,000. Buy the home for 72. Loan amount 703. Still 10% down in interest rates.
There’s no cost. Monthly payment $4250. Here’s the math to decide what makes sense for you. The difference in these two payments is $184 a month. If you have the seller by a lower rate, your monthly payments $184 less. That’s great. However, it’s going to take you eight years to break even. Are you going to keep this loan and or this home for at least eight years?
Now, let’s not forget, the feds have told us mortgage rates are coming down next year. You’re probably refinancing. Two reasons. Inflation’s coming down. That means mortgage rates come down historically to show you that. Number two, Fannie Mae told us mortgage rates, they predict in the mid high to 4% range. I’m not saying don’t do this. I’m saying before you buy into what mortgage lenders and realtors are telling you.
Sound smart. Understand the math before you do. Let me know if you have any questions. Thanks.
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