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Consider a Seller-Paid Rate Buy-Down Rather Than Price Reduction

Listing agents, considering offers might advise their sellers to counter-offer with a mortgage rate buy-down strategy rather than to reduce the sales price.

rate-buydown

We like to help our agents with charts from our Mortgage Lens program.  The chart helps to illustrate the power of leverage, to both the seller and buyer, and gives us a shot at the loan business.

(N.B.- The chart shown doesn’t match the scenario below)

Here’s a scenario designed to meet both the buyers’ and sellers’ objectives:

The property is listed at $300,000; an offer comes in at $283,000.  One of the most important benefits of the lower price, to the buyer, is the lower mortgage payment.  An 80% loan on $300,000 (at 5.25%) would yield a P&I mortgage payment of $1,325.  Lowering the price to $283,000, would lower the loan to $224,000 and the payment to $1250/month.

Consider a mortgage rate buy-down as the counter-offer. For two discount points (about $4800), the seller could reduce the rate to 4.75% and the payment to $1251.  The buyer gets the payment he wants and the mortgage rate buy-down strategy saves the seller some $12,200.