how does a 2/1 buydown actually work?

Seven Figures · Joined: 09 May 2005 Posts: 2

Does anyone care to explain for the forum how they calculate a true 2/1 buydown?

Seven

capnmorgan5555 · Joined: 29 Jan 2005 Posts: 29

Ok here goes.

Say $100,000 loan 30 year fixed at 6.5%.

P&I at 6.5% is $632.07

The first year bought down rate is 2% lower than your 30 year fixed rate so 4.5% your P&I at 4.5% is $506.69 or $125.38 lower per month for 12 months so year one cost is $1,504.54

The 2nd year bought down rate is 1% lower than your 30 year fixed rate so 5.5% your P&I at 5.5% is $567.79 or $64.28 lower per month for 12 months so year two cost is $771.31

Your total cost of the buydown is $1,504.54 + $771.31 = $2,251.91

I haven't done a buydown in years, but it seems that it usually came out closer to 2.625% for total cost, in fact I see some lenders charging a flat 2.625% for the buydown- so they are pocketing some extra cash.

Hope this helps.

Haplo · Joined: 20 Jan 2005 Posts: 2422 Location: Springfield, IL

We are doing a 1-0 buydown for free right now and it freaking rocks!! I had no idea about how these things worked until recently, so I'm glad the company did this.

Depends on the scenario but this can be a real winner for some people.

chow · Posted: Wed May 11, 2005 7:03 pm Post subject:

<little furry dog sneaks up behind mortgage banker loan originator>

So.....what's your start rate? 8)

you're fee's :?:

Is this a limited option to FHA or Fannie/ Freddie? or can I get that 1-0 buy down on 100% Non Owner Occupied loans?

<little furry dog slips off to call local retail office>

Haplo · Joined: 20 Jan 2005 Posts: 2422 Location: Springfield, IL

It's offered on Conforming 30/fix, 15/fix, 5/1, 10/1 arms as well as VA/FHA 30/15 fix. 5/1 non conforming is also included. Start rate *was* at 6 but I didn't d/l rates yesterday so that probably changed. It is not available for N/O/O or Interest only.

chow · Posted: Thu May 12, 2005 3:21 pm Post subject:

6% :shock:

(i'm giving him a hard time)

Haplo · Joined: 20 Jan 2005 Posts: 2422 Location: Springfield, IL

That all depends ;) That's a no points rate based on a couple days ago. (Downloading my new rates actually as we speak.) And of course, depending on the scenario it may be lower. I generally prefer to be conservative on the rate depending on how far along in the process they are. that way if someone is coming in for a PQ and rates change in the next 30 - 60 days before they've even found a place, they're not suddenly un-qualified.

Different markets have different rates as well. In a market like ours where the loans are incredibly small there's very little room for adjustments. When you're talking about $500,000 minimum loans in southern cali there's much more room for better rates.

Note - As of today 6% is where I would be at for most purchases in this area for a 'no points' loan.

Oh and I always quote the both a no points and a points rate to consumers however I have yet to have anyone take me up on points in this market. (very few even have the money to consider it.)

chow · Posted: Thu May 12, 2005 7:54 pm Post subject:

I really like that little disclosure about how rates change, and loan amounts affect the rate-even the program selected affects the rate. The only thing we can tell people is what our costs are-based on what we are presented-those can change on a hourly basis.

Haplo was still in "Diaper's" when the rock hit the stone wall in '98 on "One Dark and Loaney Evening." How old were you when Jimmy Carter was Prez (and I have many an ex boss that couldn't even write a mortgage loan because the rates exceeded the state limits on costs and fee, and APR)? BTW, mortgage rates were 18% when Jimmy was Prez.

I want to fire the following groups:

I can't disclose this list because most of them just lobby against anyone making a dime in this business, and then they wonder why there are bars at the bank, two tellers to service 90 people an hour.

Pay fee's for what?

I may be a die hard broker, but I really understand the cost of running a Bank, a Credit Union, or a business that serves the public. Just understand when I sneak up and poke you- I want you to explain the "Why" & the "Who" of money. Otherwise we end up with a society that feels that "Money is Free" and Loans, Bank Accounts, and Servicing is all FREE!

"I want my money for nuthin' and my loan for free!"

Jenie0109 · Joined: 27 Jan 2009 Posts: 307 Location: chicago IL

Great replies! nice posts