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Home & Real Estate

Sweeten the Sale With a Lower Rate

Offer home buyers lower payments without slashing the price.

Paying points to reduce the interest rate on your own mortgage is nothing new. But some anxious home sellers are offering to do the same for potential buyers. Lenders -- mainly those affiliated with homebuilders or who work through real estate agents -- are expanding temporary buydown programs. So instead of cutting the price by more than $10,000, for example, a seller might be able to seal the deal by paying the bank less than half that much.

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With a typical 2/1 buydown, the buyer gets a rate two percentage points below the market rate for the first year of the loan and one point lower in the second. Then the loan reverts to the market rate in effect at the time of settlement. There are variations such as the 3/2/1, which costs more, of course, and the 1/0, which costs less. The cost of the 2/1 version is typically a bit more than two points, or $4,380 on a $200,000 loan. In the first year, the buyer would pay $225 less each month -- and in the second year, $109 less -- than if the seller had cut the price by $4,000, assuming a $250,000 house with 20% down and a 6% interest rate.

The strategy may enable buyers -- especially those who anticipate rising income -- to afford your house. For those who qualify to make the higher mortgage payment, the monthly savings could pay for furniture or landscaping. Sellers get more bang, too. To match the first-year monthly payment without the buydown in our example, you'd have to cut the price by $50,000.

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