But what is it?! Well, let's start with the problem.
Problem:
Buyers are turned off due to the high interest rates. While 6% is still historically low, it's hard to accept after recent time in the 3s.
Solution:
Mortgage Buydown.
The buyers interest rate is lowered, usually by 1-3 points, by paying cash. This can also be paid by the lender, seller, or homebuilder.
Who Pockets That Payment:
The cash hangs out in an escrow account with the buyer's lender and is used to pay part of the monthly mortgage payment, for anywhere between one and three years.
How It Helps:
Lower monthly payments benefit the buyer in the short term, makes a greater impact that just reducing the price.
Here's an example of those numbers below:
Why Now:
There really wasn't a need to do this when interest rates were in the threes, but this isn't something new or unfamiliar to lenders. Now, it's an enticing incentive to buyers, so lenders are heavily promoting it.
Buyer Impact:
Buyers still have to qualify for mortgage payments at the higher interest rate. Those initial payments will feel less burdensome but when it shifts back to the original, higher, interest rate, it's could be a painful adjustment.
While refinancing at a lower rate is suggested, it's not guaranteed.
