A mortgage’s interest rate is one of the most crucial considerations for homebuyers. When dealing with a mortgage, even a seemingly small difference in interest rates makes a huge difference. For homebuyers looking for low-interest rates, a buy-down mortgage is the best option.
Buy-down mortgages involve paying additional charges upfront in exchange for a low-interest rate. Most home loan lenders in Tempe like VIP Mortgage offer an interest rate reduction of 0.25% for one point or 1% of your home’s purchase price. Here are some tidbits to help you understand this mortgage better.
Types of Buy-Down Home Loans
2-1 and 3-2-1 mortgages are typical examples of temporary buy-down mortgages. The interest rates of temporary buy-downs change during the loan’s initial period and revert to the original afterwards. Permanent buy-downs give a low rate over your entire loan period in exchange for additional fees at the close of your loan.
One of the essential concerns in this type of loan is your income. If your income is set to grow after a short period, a temporary buy-down is an ideal option. The extra income can cover your loan’s additional costs after the buy-down period expires. If you have a substantial amount of money up front, getting a permanent buy-down is better.
Benefits of Buy-Down Loans
Apart from the low-interest rate of this loan option, you also qualify for more substantial tax deductions. You can itemize the points you pay for a buy-down mortgage as mortgage interest on federal tax forms. This way, your points will be tax deductible for the entire year of your home purchase.
Even with all the benefits of this mortgage option, it is not the ideal solution for everyone. Your mortgage is long-term debt and making a wise choice up front is essential to ensure you do not get stuck with the wrong loan. Talk to your mortgage lender on the best option for your situation.