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Rooney
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Nics
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Caron
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Joined: 19 Jul 2005
Posts: 1519 Location: florida
281.04 Dollars($)
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Posted: Fri Sep 30, 2005 11:59 pm Post subject: RE:
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Hi Rooney
Buydown implies a reduction in the interest rate charged on your mortgage. Buydown can be temporary or permanent. With a temporary buydown, the interest rate on your mortgage is reduced at least for the initial years. The most common forms of buydown are 3-2-1 buy down, 2-1 buy down, 1-0 buydown.
If you consider a 2-1 buydown, the interest rate for the first year will be 2% lower than the actual rate, that of the second year will be 1% lower and from the third year you will have to follow the actual rate. That is, on a 8% fixed rate mortgage, the rate for the first year is 6% and that for the second year is 7%. From the third year, you will have to follow the actual rate, that is, 8%.
In order to make up for the reduced payments in the initial period, the lender may ask you to deposit cash in your escrow account at the time of loan application. This amount helps the lender to receive the same payment as in the absence of any buydown.
Monthly Payments by Borrowers and Payments From Escrow Accounts on a $120,000 for 25Year @ 6.5% Mortgage With 3-2-1, 2-1 and 1-0 Temporary Buydowns | |
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| Year | Monthly Payment Received by the Lender ($) | 3-2-1 Buydown | 2-1 Buydown | 1-0 Buydown | | Payment by Borrower ($) | Payment from Escrow ($) | Payment by Borrower ($) | Payment from Escrow ($) | Payment by Borrower ($) | Payment from Escrow ($) | | 1 | 758.49 | 538.86 | 219.63 | 608.03 | 150.46 | 681.35 | 77.14 | | 2 | 758.49 | 608.03 | 150.46 | 681.35 | 77.14 | 758.49 |
0 | | 3 | 758.49 | 681.35 | 77.14 | 758.49 | 0 | 758.49 | 0 | | 4-30 | 758.49 | 758.49 | 0 | 758.49 | 0 | 758.49 | 0 | | Total Escrow | | 5366.76 | | 2731.20 | | 925.68 |
For further information on this topic please visit our section on buydown mortgage.
Please let us know about your feedback. Also sign up with us at http://www.mortgagefit.com/signup/ to get free advice on related issues.
Regards,
Caron. |
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Mickie
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colin
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Joined: 30 Jun 2006
Posts: 582 Location: Waltham, Massachusetts
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