Thousands of happy homeowners are learning that they can pay their mortgage off sooner than expected, without making any additional payments to the mortgage principle. Just imagine not being chained l…
Thousands of happy homeowners are learning that they can pay their mortgage off sooner than expected, without making any additional payments to the mortgage principle. Just imagine not being chained like a prisoner for the next thirty years to your home mortgage, scraping by to make your house payments. The answer to paying off your mortgage early is the mortgage buydown and no closing costs loan products.
How A Buydown Can Save You Thousands
There are two type of buydowns, the permanent buydown and the temporary buydown. The permanent buydown occurs when the either the borrower or the seller pays discount points to the lender. This allows the borrower or seller to realize a lower rate of interest for the remaining term of the loan. A permanent buydown takes a longer period of time than the temporary buydown to recoup the costs that would be associated with it. Therefore, the best of the two is the temporary.
3 Types Of Temporary Buydowns
The temporary buydown occurs when the borrower, seller, or lender prepays the interest on the principle for up to the first three years of the loan. This gives you a lower interest rate on the life of the loan. Temporary buydowns can be 3-2-1, 2-1, or 1-0.
Let us look at how the temporary buydown works for each of the scenarios (3-2-1, 2-1, or 1-0). In our examples, we are using a note rate of 7.5% on a thirty year mortgage product.
In a 3-2-1 buydown, with a note rate of 7.5%, the interest for the first year would be 4.5%, the second year would be 5.5%, and the third year 6.5%, and 7.5% for the fourth through thirtieth year.
In the 2-1 temporary buydown with a note rate of 7.5%, the first year would carry an interest rate of 5.5%, and the second year 6.5%. The third through the thirtieth years would carry a 7.5% interest rate.
With the 1-0 buydown, the 7.5% note rate would have 6.5% interest for the first year, and years two through thirty would carry a 7.5% rate.
No Closing Cost Loan + Temporary Buydown = Savings
Paying your mortgage off early is not accomplished solely with a temporary buydown, but when you couple the buydown with a no closing cost loan product. At the end of the buydown, you have the option of keeping the loan and maintaining the 7.5% interest rate, refinancing again with no closing costs into another buydown, or refinancing with a different loan product.
With the temporary buydown and no closing cost loan options, the lender prepays the difference between the note rate interest and the actual interest rate for the first two years. This amount is held in escrow. With each monthly payment, the difference in interest for that month is deducted from escrow and applied to the principle. When you redo the loan product with the lender again, the amount left in escrow is applied towards the payoff of the loan, thus you are paying your home off sooner.
Online lenders are very knowledgeable in the area of temporary buydowns and no closing cost loan products. Contact your online lender today to find out how you, too, can join the thousands who are being liberated from their mortgages earlier, saving you thousands of dollars.