The large increase in interest rates this year and subsequent rise in monthly payments has substantially decreased the number of home buyers looking to buy homes. As a result lenders are trying to find ways to make monthly payments look lower while still collecting market rate interest. The current product lenders are pushing is a temporary buy down which is funded by the seller. The scheme uses money that is yours and pays you no interest while they hold the money. We recommend that you use the money to do a permanent buy down or put it somewhere that pays you interest.
What is a temporary buy down?
A temporary buydown pays some of the interest due the first couple years making it appear that you are paying less interest at the beginning of the loan. In essence escrow holds onto money that is the buyers and pays them no interest. No bank would let someone else hold their money and collect no interest. A home buyer should expect return on their money. The temporary buydown does use a seller credit to fund the account but a seller credit is still the buyers money. The buyer could reduce the price of the house or permanently buy down the rate or use it to cover all closing costs or put the money in an account that earns interest. Home buyers should not be doing temporary buydowns. Check out the video for a full mathematical breakdown.