Save With Our Inflation Buster Temporary Interest Rate Buydown
Kevin Graham6-minute read
November 07, 2022
Houses are a major investment. Any advantage you can get in saving on costs is a good thing. A temporary interest rate buydown could help you save money on interest and have a lower payment at the beginning of your loan term. Let’s explore how you can get a 1-year temporary buydown for free with the Inflation Buster by Rocket Mortgage®.1
While Inflation Buster is for home purchases only, it's just one piece of the Rocket Advantage. We’ll also detail how you can save on a refinance in the future.
What Is A Temporary Interest Rate Buydown?
A temporary interest rate buydown involves having a lower interest rate for a period of time at the beginning of your mortgage. For example, although your permanent interest rate might be 6%, your interest rate for the first couple of years of your loan might be 5%.
We’ll take you through some of the math later on, but this has two primary benefits: First, you’ll save on interest compared to someone who doesn’t have a temporary buydown. Second, your payment is lower at the beginning of your term. This could be helpful if you need the money you’re saving for furniture, renovations or anything else.
How Does A Temporary Interest Rate Buydown Work?
When you take advantage of a temporary interest rate buydown, your interest rate is lower than the final rate in your contract. However, mortgage investors need to know they’ll be paid the rate they’re supposed to get, so how does this work?
The difference between the interest you would pay under the full rate and what you’re actually paying for the first year or two of your mortgage is placed in an escrow account. The escrow account can be covered by your lender, a seller or real estate agent in the transaction.
Each month, the investor gets a payment from the escrow account in order to make up the difference between what you’re paying during the buydown and what’s owed based on your interest rate.
What Temporary Buydowns Are Accepted By Rocket Mortgage?
Our clients can use a couple of different types of temporary buydowns. However, you can get a 1-0 buydown from us at no additional cost to yourself, so let’s touch on that first. It’s a massive savings advantage.
The first is called a 1-0 buydown. Under this option, your rate is 1% lower for the first year of the loan. Once that year is up, it adjusts to your permanent rate.
The second one is a 2-1 buydown. Your interest rate is lowered by 2% the first year. The second year, the rate is 1% lower than the long-term rate. After that, your rate is adjusted to your permanent rate in the third year. You may be able to get this through negotiation with a seller or real estate agent.
Inflation Buster By Rocket Mortgage
With Inflation Buster, many Rocket Mortgage purchase clients can qualify for a lender credit that will fully cover the cost of a 1-0 temporary buydown option.
Temporary buydowns are available on all fixed mortgages available through the mortgage investors Fannie Mae, Freddie Mac, FHA and VA.
The Math Behind Temporary Buydowns
In order to really wrap your mind around this concept, it’ll be helpful to see some numbers. Let’s do a quick example.
Let’s do a 1-0 buydown on a $400,000 30-year fixed with a permanent interest rate of 6.5%. The first year of your loan you save $257.12 on your monthly payment at a 5.5% interest rate. Finally, the interest rate becomes fixed at 6.5% with a monthly payment of $2,528.28 in the second year.
Not only is your payment lowered, but in this scenario, you save $3,085.44 in interest over the first year of the loan.
Pros And Cons Of Temporary Interest Rate Buydowns
Temporary interest rate buydowns have a couple of big benefits and one caveat to be aware of.
- Save on interest: For the time that you have a lower interest rate under the buydown, you’re not responsible for that extra interest. It’s being paid out of an escrow account funded by someone else. That’s money right back in your pocket.
- Lower payment at the start: Your payment will be lower for the first year or two of your loan, depending on how your temporary buydown is structured. This could come in handy if you have to make investments in your house after moving in.
- Know whether you have leverage: The only real downside to a temporary buydown is that you need someone other than yourself to fund it. In a seller’s market, your offer is probably less likely to get accepted if there are other offers on the table without a buydown request. On the other hand, if the seller or their real estate agent is sick of having their house sit on the market and wants to make a sale, a buydown may not be a dealbreaker. Your real estate agent will be able to help you negotiate. Of course, we’re covering 1-0 buydowns.
Temporary Interest Rate Buydown Frequently Asked Questions
Now that you know the basics, let’s run through a couple of questions you might have.
With different interest rates, how do you determine how much I can afford?
It’s important to note that when you’re doing a mortgage with a temporary buydown, the payment you qualify for is still based on what the final interest rate will be. If you lock your rate at 6%, the amount you qualify for will be based on that rate even if your initial rate might be 4%. This way you’ll know you can afford the full payment.
Are there any restrictions on this offer?
This is available on fixed loans from Fannie Mae, Freddie Mac, FHA and VA. You also have to lock your rate by the end of the year.
Save Now, Save Later
Getting a lower rate at the beginning of your mortgage is one thing, but we also know mortgage rates are higher now than they have been in the recent past. If rates fall, we wouldn’t blame you for wanting to refinance. With our Rate Drop Advantage, if you do a mortgage with us now, you can refinance later with reduced closing costs.2,3,4
Specifically, we’ll give you a lender-paid credit to cover costs including (but not limited to) the first appraisal fee, credit report, mortgage recording fee and, if a conventional loan through Fannie Mae or Freddie Mac, processing and underwriting fees. You can refinance at any time between 4 months and 3 years after you close.
The Bottom Line
A temporary interest rate buydown allows you to save on interest and benefit from a lower monthly payment at the beginning of your loan. You’ll also be able to get a free 1-year temporary buydown from Rocket Mortgage. We also accept longer buydowns if you can negotiate them with sellers or the real estate agents handling your purchase.
But it’s not just about saving today. You can also save tomorrow. With our Rate Drop Advantage, you can close your mortgage now and refinance later with reduced closing costs.
If this sounds good to you, you can apply online. You should also feel free to give us a call at (833) 326-6018 to get started.
1 If client locks their initial rate on a purchase loan between 9/15/22 and 12/31/22 client’s loan is eligible for the promotional Inflation Buster offer. The promotional offer will effectively reduce the rate by 1% for the first year of the mortgage; a custodial escrow account will be funded by the lender-paid credit, up to a maximum amount of $9,708, and funds will be dispersed from the escrow account to the investor to account for the difference in interest during buydown period. Offer valid on primary residences, and on second homes through Fannie Mae and Freddie Mac. Offer not valid on Refinance loans, third-party mortgage broker, the Partnerships channel (Schwab, Santander, Morgan Stanley, HLBP, RPO, etc.), Franchise Bankers, Schwab C- products, Rocket 360, Team Member Loans and TM Referrals, non-agency Jumbo Loans, Interest Only, 2nd lien products, ARM products, investment properties, VA 2nd homes, Prospect credit triggers. Additionally, cannot be combined with PowerPack or ANY other promotion. Offer valid on fixed-rate conventional conforming and government loans in retail channels. Offer may not be redeemed for cash or credit and is nontransferable. Offer cannot be retroactively applied to any loans and may not be used with any other discounts or promotions. This offer is subject to changes or cancellation at any time at the sole discretion of Rocket Mortgage. Additional restrictions/conditions may apply. This is not a commitment to lend and is contingent on qualification per full underwriting guidelines.
2 Client must lock rate on purchase loan between 7/19/22 and 12/31/22. Refinance offer must be claimed by locking initial rate between 120 days and 36 months from purchase closing date. Refinance loan must be on the same subject property as the original purchase loan. Rocket Mortgage will cover the following fees as a lender paid credit: first appraisal fees, credit report, tax certification, mortgage recording fee, flood certification and life of loan, notary fees in Pennsylvania and New York, and if a conventional loan, processing and underwriting fees.
3 Refinancing may cause finance charges to be higher over the life of the loan.
4 All offers may not be redeemed for cash or credit and is nontransferable. Offers cannot be retroactively applied to any previously closed loans or loans already in process. These two offers may be combined but offers may not be used with any other discounts or promotions. Offers are subject to changes or cancellation at any time at the sole discretion of Rocket Mortgage. Additional restrictions/conditions may apply. This is not a commitment to lend and is contingent on qualification per full underwriting guidelines. Offer valid on conventional conforming and government loans in our retail channels.
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