Inflation Fighter Mortgage Loans

A temporary interest rate buydown involves having a lower interest rate at the beginning of your mortgage. For example, although your permanent interest rate might be 7%, your interest rate for the first couple of years of your loan might be 6% or 5%, depending on the buydown term.

This has a couple of benefits for you.  First, you will save on interest expenses compared to traditional financing.  Second, your payment will be lower during the buydown period at the beginning of your loan term.  This can help you to cover other expenses such as remodeling, new furniture, lawn mower or anything else!

When you take advantage of a temporary interest rate buydown, your initial interest rate is lower than the full interest rate reflected in your loan note. So, what makes up the difference in the interest?

The difference between the interest you would pay under the full rate and what you’re actually paying during the first year or two of the mortgage is placed in an escrow account.  This escrow account can be funded by CUTX, the seller of the property, a real estate agent or you.  Any interested party to the transaction can contribute funds to the account, and you can use multiple sources to maximize your benefit. 

Each month, a portion of your payment will be taken from the escrow account to make up the difference between what you’re paying during the buydown and what’s owed based on your actual interest rate. It’s that simple!

For example, let’s look at a 1-0 buydown on a $400,000 30-year fixed rate loan with a permanent interest rate of 6.5%.  During the first year of your loan, your interest rate will be at 5.5% for a monthly principal and interest payment of $2,271.16, saving you $257.12 on your monthly payment.  In the second year, your interest rate will become fixed at 6.5% with a monthly principal and interest payment of $2,528.28. That's a savings of $3,085.44 in monthly payments during the first year.  Monthly payment examples do not include funds collected for taxes, insurance or other escrowed items.

Members can use a couple of different types of temporary buydowns ranging from one to three years.

The first option is a one-year buydown, which is called a 1-0 buydown. With this option, your rate is 1% lower for the first year of the loan. Once that year is up, the rate adjusts back up to your permanent rate.  You can get a 1-0 buydown at no additional cost to you, which is a great savings advantage. This is our most popular option.

The second option is a 2-1 buydown. Your interest rate is lowered by 2% in the first year, then in the second year, the rate is 1% lower than the long-term rate.  Once the second year is up, the rate adjusts back to your permanent rate.  With this option, you will generally secure the additional buydown funds through negotiation with the property seller or your real estate agent.

The third option is a 3-2-1 buydown.  With this option, your interest rate is lowered by 3% during the first year, then in the second year the rate is 2% lower, then in the third year it is 1% lower than the long-term rate.  Once the third year is up, the rate adjusts back to your permanent rate.  As with the 2-1 buydown, you will generally secure additional buydown funds through negotiation with the property seller or your real estate agent; however, you can also use your own funds on deposit.