Your Clients Can Save With The Inflation Buster
Kevin Graham5 minute-read
October 01, 2022
Seemingly everything is more expensive right now. Houses are no exception. According to the 20-city Case-Shiller Index, home prices were up 18.65% overall compared to the same time last year. That’s more than double the annual increase from the most widely followed inflation metric released by the Bureau of Labor Statistics.
There’s no doubt that your clients know the market if they’ve been looking for a while and following your guidance. You’ve walked through the budget and set appropriate expectations. Still, there are a lot of expenses that come with buying a new home – furniture, renovations, etc. Any break is welcome.
The Inflation Buster is a free, temporary interest rate buydown that Rocket Mortgage® is excited to offer.1 Let’s get into all the details on how this can be a real savings boon for your clients.
What Is A Temporary Interest Rate Buydown?
A temporary interest rate buydown is a lower rate at the beginning of the loan term that adjusts to your final rate after a period of time. This is different from an adjustable-rate mortgage because it doesn’t continue to move after the buydown is complete.
Common structures include 1-0 and 2-1 buydowns. In 1-0 temporary buydowns, your client’s interest rate is 1% below their permanent rate for the first year of the mortgage before settling at the permanent rate in the second year.
In a 2-1 buydown, the interest rate is 2% lower for the first year of the mortgage. In the second year, the rate is 1% lower than the permanent rate that takes hold in year 3.
Mechanics Of A Temporary Interest Rate Buydown
The benefit of a temporary interest rate buydown is obvious for clients, but how does it work in practice? After all, investors in mortgages want the full amount of interest they’re supposed to receive every month.
The difference between the payment under the contract and the amount paid due to the reduced interest rate is set aside in an escrow account that can be funded by the lender, real estate agent or home seller. Each month, money is taken out of the escrow account for the difference.
Clients are qualified based on the full payment amount at the permanent interest rate, so you shouldn’t have concerns about whether they can afford the payment over the long term.
What’s Being Offered By Rocket Mortgage?
Inflation Buster is a 1-0 temporary buydown that we’re providing at no additional cost to your client. This means that for the first year of the mortgage, their payment is based on an interest rate that’s 1% lower than the interest rate for the rest of the term. The real incentive here is the savings at the beginning of the loan, but let’s show the math.
Let’s assume a $300,000 loan amount at a permanent interest rate of 6% with a 30-year term. In the first year, the payment is $1,610.47. Because the payment is based on a 5% interest rate in the first year, your client saves a total of $188.19 per month or $2,258.28 in the first year.
This is available on all fixed conventional loans from Fannie Mae and Freddie Mac, as well as FHA and VA loans.
Benefits And Disadvantages Of Temporary Interest Rate Buydowns
There are a couple of big benefits and only one thing to be cautious about when it comes to negotiating a temporary interest rate buydown with sellers or their real estate agents.
- Lower monthly payment for the period of the buydown: Because the payment during the buydown is based on a lower interest rate, your client’s monthly payment will be lower.
- Less interest paid: Because the interest a client pays is partially covered by the temporary buydown, they’ll end up paying less interest over the life of the loan itself.
- Financial flexibility: Your clients can take the extra funds from the payment savings over the first year and put it toward things like furniture, remodeling or whatever else they desire. They could also take the savings and put it toward an extra payment on the principal each month, enabling them to pay off the loan sooner and save even more on interest over the life of the loan.
Giving a temporary buydown is a concession on the part of the seller. Not only are there regulatory limits to how much a seller can contribute, but if it’s a particularly hot market, your ask for this could get your offer moved further down the pile. On the other hand, if the property has been on the market for a while, a seller may be more motivated to work with you.
It’s your role to advise your clients as to how much leverage they may have in the give-and-take of a negotiation. Of course, Rocket Mortgage is covering a 1-0 temporary buydown through Inflation Buster. Because of that, there may be little downside on a 1-0 temporary buydown. If anything, this is just something to keep in mind when negotiating with sellers and the listing agent for additional buydown years.
The Bottom Line
Inflation Buster is a free, temporary buydown being offered to clients by Rocket Mortgage. For the first year, the interest rate paid by your client will be 1% lower than the contract rate. The difference in the payment will be covered by an escrow account we fund. Clients are qualified based on the permanent payment amount.
Are you interested in this offer for your clients? You can refer them by logging into your Rocket ProSM Insight account. If you don’t have one yet, you can sign up for free.
1If client locks their initial rate on a purchase loan between 9/15/22 and 2/28/23 client’s loan is eligible for the Inflation Buster offer. The offer will effectively reduce the rate by 1% for the first year of the mortgage; a custodial escrow account will be funded by the lender-paid credit, up to a maximum amount of $9,708, and funds will be dispersed from the escrow account to the investor to account for the difference in interest during buydown period. Offer valid only on primary residences and second homes through Fannie Mae and Freddie Mac. Offer not valid on non-agency Jumbo Loans, Interest Only loans, 2nd lien products, bank statement loans, and manufactured homes. Offer only valid on 15-, 20- and 30-year fixed-rate conventional conforming and government purchase loans in retail channels. Offer may not be redeemed for cash or credit and is nontransferable. Offer cannot be retroactively applied to any loans and may not be used with any other discounts or promotions. This offer is subject to changes or cancellation at any time at the sole discretion of Rocket Mortgage. Additional restrictions/conditions may apply. This is not a commitment to lend and is contingent on qualification per full underwriting guidelines.
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