What Is an Escrow Buydown?

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An escrow buydown relates to the interest rate on your loan. Find out more about an escrow buydown with help from a managing broker with Windermere Real Estate in this free video clip.

Part of the Video Series: Real Estate Questions
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Video Transcript

Hi, Jim Jacobsen, Windermere Real Estate Seattle, Washington, I'm a Managing Broker here and the question comes up regarding temporary buydowns or buydowns on your principal interest payments or your interest rate on your loan. An example would be I may not be qualified at this time to purchase the house that I want to but if I buydown or put money up front which I call prepaid interest or the lender's would call points then I can get a lower interest rate on a temporary basis. One good example that we would call 3-2-1 buydown. Let's say the current interest rate is not what it is today but lets say the current interest rate were at 7 and for the first year that loan it would start out at 4 and the second year would be 5 and the third year it would be 6 and then from then on it would be 7 percent the life of the loan at which time you may refinance, maybe the interest rates have gone down lower. There are a lot of different elements that would create a change in how you refinance or readjust that mortgage. Another one might an FHA where you're gonna buy the interest rate down on for the entire 30 years then just pay extra points and each point represents 1 percent of the loan. So example would be if I were buying a home for 310,000 and my balance was gonna be 300,000, 1 point would be 1 or would be 3,000 dollars and it might require as much as in some cases 3 or 4 points to buy an interest rate down and it just depends where the market is that particular time.


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