Reverse Mortgages

A reverse mortgage is a special type of loan made to older homeowners to enable them to convert the..

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Interest Rate

The most common buydown is the 2-1 buydown. In the past, for a buyer to secure a 2-1 buydown they would pay...

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Loan Programs

Fixed Rate Mortgages - The most common type of mortgage program where your monthly payments for interest and principal never change...


Standard ARMS and the Differences - Choosing an ARM with an index that reacts quickly lets you take full advantage of falling interest rates...


Introductory Rate ARM's - Most ARM's have a low introductory rate, which is good anywhere from 1 month to as long as 10 years...


Reverse Mortgages - A Special type of loan made to older homeowners to enable them to convert the equity in their home to cash to finance other needs...


London Inter Bank - LIBOR is the rate on dollar-denominated deposits, also know as Eurodollars, traded between banks in London...


Interest Rate Buydowns - The buyer would pay points above current market points in order to pay a below market interest rate during the first two years of the loan...


Cost of Funds Index (COFI) - The ratio of the dollar amount paid in interest during the month to the average dollar amount of the funds for that month...


Graduated Payment Mortgage (GPM) - With a GPM the payments are usually fixed for one year at a time.


Choosing The Best Program - The right type of mortgage for you depends on many different factors


Interest Rate Buydowns

The most common buydown is the 2-1 buydown. In the past, for a buyer to secure a 2-1 buydown they would pay 3 points above current market points in order to pay a below market interest rate during the first two years of the loan. At the end of the two years they would then pay the old market rate for the remaining term.

As an example, if the current market rate for a conforming fixed rate loan is 8.5% at a cost of 1.5 points, the buydown gives the borrower a first year rate of 6.50%, a second year rate of 7.50% and a third through 30th year rate of 8.50% and the cost would be 4.5 points. Buydown costs were usually paid for by a transferring company because of the high points associated with them.

In today's market, mortgage companies have designed variations of the old buydowns rather than charge higher points to the buyer in the beginning they increase the note rate to cover their yields in the later years.

As an example, if the current rate for a conforming fixed rate loan is 8.50% at a cost of 1.5 points, the buydown would give the buyer a first year rate of 7.25%, a second year rate of 8.25% and a third through 30th year rate of 9.25% , or a three-quarter point higher note rate than the current market and the cost would remain at 1.5 points.

Another common buydown is the 3-2-1 buydown which works much in the same ways as the 2-1 buydown, with the exception of the starting interest rate being 3% below the note rate. Another variation is the flex-fixed buydown programs that increase at six month interval rather than annual intervals.

As an example, for a flex-fixed jumbo buydown at a cost of 1.5 points, the first six months rate would be 7.50%, the second six months the rate would be 8.00%, the next six months rate would be 8.50%, the next six months rate would be 9.00%, the next six months the rate would be 9.50% and at the 37th month the rate would reach the note rate of 9.875% and would remain there for the remainder of the term. A comparable jumbo 30 year fixed at 1.5 points would be 8.875%.