This is something relevant to the market that could help buyers and sellers in this competitive real estate space…

Lower Rates and Payments in this Market?  How?

By Rob McCarthy – 101 Loan LLC dtd 10/26/2022

I recently wrote this article ( on 2 to 1 buy downs (or 3 to 2 to 1 buy downs) where a buyer purchasing real estate could have the seller credit points to temporarily buy down the buyers rate as an example:

Starting Rate is 6.5% (current for a 30 year fixed) as an example.  With a 2 to 1 buy down, the starting rate would be 4.5% for year 1 and then the next year, 5.5% and then the 3rd year until the end of the loan, 6.5%.  This would allow the buyer to get into the property with much lower payments the first 2 years with the idea of refinancing in 2 to 3 years when interest rates come down as analysts predict.

Here’s the Challenge…

These buy downs are only available for conforming loan amounts of $970,800 and less.  What does one do if the buyer is obtaining a jumbo loan which is higher in loan amount?  Also…what if the buyer wants a hybrid such as 7 year or 10 year fixed which is lower than a 30 year fixed in rate?

We have a Solution…

On a jumbo loan, you can still buy the rate down but instead of it dropping 1% or more in rate, if you choose a 7 year fixed (amortized over 30 years), the rate is .75 lower than a 30 year jumbo fixed (currently at 6.375% at 0 points) and is fixed for the next 7 years.  This gives the buyer, plenty of time for interest rates to drop; meanwhile the buyer gets to pay the lower payment for the next 7 years compared with the 30 year fixed with a significantly higher payment and rate.  Note: Rates are subject to change without notice and are only provided here for educational purposes.

“Most important” the Buyer can have the Seller cover the points/buydown to sell the house.  This is something more sellers are willing to do, to unload their property in a timely manner!

See the Examples of Different Price Points and Loan Amounts below where the Rate is Being Bought Down…

  • 1 Million in Price with 20% down payment = $800,000 loan amount – 7 year arm – 5.625% @ 2.25 point cost ($18,000) = $4605 mo/payment.
  • 2 Million in Price with 20% down payment = $1,600,000 loan amount – 7 year arm – 5.625% @ 2.25 point cost ($36,000) = $9211 mo/payment
  • 3 Million in Price with 20% down payment = $2,400,000 loan amount – 7 year arm – 5.625% @ 2.25 point cost ($54,000) = $13,816 mo/payment

Important Notes:  As a buyer, you have the seller pay for the 2.25 points as a condition of accepting your offer.  Those points lower your rate, lower your payment and lower your interest cost over time and are tax deductible to the buyer based on their tax bracket.

Attention Buyers:  In today’s market, with increased inventory and homes sitting on the market longer, you not only have more control in what you pay, but what the seller provides you credit wise so the payments are lower and more affordable.  Be sure to take advantage of the above.

Attention Sellers:  Now you have a tool you can provide potential buyers, something other sellers are not using.  Be sure to use the above so your listing is more competitive and sells quicker.

If you would like this priced out and would like to get preapproved, please let me know.  Thanks.

BTW…See our real estate and market report for what’s happening in the interest rate world right now.

Best Regards,

Rob McCarthy

Senior Mortgage Advisor

408-377-4123 o  650-465-8957 c   408-608-1921 f

101 Loan – 6090 Hellyer Avenue #100, San Jose, CA 95138

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