Answering Common Borrower Questions: “What is a Mortgage Loan Buydown?”

With your help, borrowers could potentially be saving big.

As a mortgage professional, you could probably guess that one of the biggest barriers to homeownership in today’s market is cost.

In fact, more than one-third (34%) of buyers see mortgage rates as a serious obstacle.

Pair that with record-low financial literacy rates and the mortgage loan buydown becomes an incredibly powerful and unexpected tool. That means mortgage professionals just like you have the opportunity to swoop in and ease anxieties, answer questions, promote borrower education, and maybe even help clients save along the way.

So, let’s dive into some of the most common borrower questions surrounding mortgage loan buydowns and their comprehensive answers:

“What is a Mortgage Loan Buydown?”

This is probably the first question you’ll hear when broaching the mortgage loan buydown conversation with the average buyer.

Remember, you’re working with these concepts day in and day out. The average consumer, on the other hand, just isn’t. Keep your answer to a short, simple definition.

Here’s a sample script you can use as a jumping-off point:

“A mortgage loan buydown is an arrangement where the borrower (that’s you) pays the lender (your mortgage provider) additional funds at closing. In exchange, the lender lowers your interest rate, usually for a predetermined period of time.”

You might also consider a handout with some of your favorite resources for clients to peruse on their own at home.

“How Can a Mortgage Loan Buydown Save Me Money?”

Ah, the million-dollar question!

Clarify that the goal of a mortgage loan buydown is to make the purchase more affordable, so yes, it could potentially save them money. You can then explain that these savings come in the form of lower monthly payments thanks to the decreased interest rate.

It might also help to break out a pen and some paper at this point. Run numbers together, comparing loan scenarios with higher interest rates to scenarios lower ones. You want the borrower to understand exactly how their interest rate impacts the monthly payment amount to effectively hammer home the impact of a mortgage loan buydown.

You can also point them toward a handy mortgage calculator, and suggest they play around with different numbers on their own time.

“What are the Different Types of Mortgage Loan Buydowns?”

Once the client understands what mortgage loan buydowns are and how they work, it’s time to get a little more specific.

Walk them through each unique type of mortgage loan buydown.

Here’s a sample script you can use:

“There are two main types of mortgage loan buydowns: the 3-2-1 buydown and the 2-1 buydown.

With a 3-2-1 buydown, interest rates are lowered for the first three years of the loan. The rate increases by one percentage point each year until you’re paying your full interest rate in the fourth year of your mortgage. For example, you might pay 3% in year one, 4% in year two, 5% in year three, and the full 6% in year four.

The 2-1 buydown is similar, but the interest rate is lowered for only the first two years of the loan. The rate still increases by one percentage point each year, but you’ll pay your full interest rate in year three instead of year four. So, that might be 4% in year one, 5% in year two, and the full 6% in year three.”

You can also explain permanent buydowns but, as they’re exceedingly rare in the market, they may not be applicable. Unless it’s a distinct possibility for this specific borrower, you don’t want to get their hopes up needlessly.

“How Can I Get a Mortgage Loan Buydown?”

If they’re talking to you, they’re already on the right track!

Explain that a mortgage professional can likely help them secure a mortgage loan buydown if they’re interested and financially able.

This might also be a good opportunity to encourage potential clients to interview a few different mortgage pros before they make a final decision. While it may seem counterintuitive to point potential business to your competitors, it can actually have the opposite effect. That’s because it shows your commitment to the customer experience. You’ve illustrated that you want the client to find the right partner, even if that isn’t you.