If you have no idea what the term mortgage buydown means and what it's all about then you have most definitely come to the right place. In the world of real estate and mortgages a mortgage buydown is a financing technique in which a potential home buyer tries to get a mortgage rate with a lower than usual interest rate for the beginning term of his or her mortgage.
If you're still unsure of how a mortgage buydown works when it comes to buying a house for sale then take a look at the following process for a hopefully helpful clarification on the situation: a buyer will pay a substantial amount of money in the form of a down payment to a lender at the start of the mortgage loan period; that initial lump sum payment is done so in exchange for a low interest rate period that usually lasts the first few years the mortgage loan is in place.
Paying a large lump sum payment at the beginning, aka the mortgage buydown, allows home buyer to make more manageable monthly mortgage payments because of the low interest rate they receive in exchange. It's a win-win situation for everybody and something that home buyers who can afford a large lump sum payment up front tend to take advantage of.
The average lump sum payment when discussing the mortgage buydown option with most lenders is around 5-10%, depending on the type of mortgage buydown you sign up for once you're ready to purchase a new home. For some that's a manageable figure but for others it's a struggle to come up with that kind of cash upfront.
We mentioned the benefits earlier but there is one drawback of the lump sum mortgage buydown though that some home buyers come to find and that is that the lower interest rates don't tend to make enough of a difference to warrant paying a large lump sum payment up front. That's why it's important that when looking into mortgage options you take a hard, long look at whether or not the numbers match-up for your situation to make it worthwhile to sign up for a mortgage buydown. There's no point in scrambling to make a large down payment if in the end it doesn't really make a dent in your bottom line.