Tuesday, May 19, 2015

Sale Price vs. Mortgage Rate: Which Would You Prefer?



7/31/14 - Which is worth more: a lower price on a home, or lower monthly mortgage payments? An article by Kenneth Harney of L.A. Times takes a shot at answering this question. What with slowing sales, price erosion, and rising of mortgage rates, realtors and home sellers are looking for better and newer ways to stimulate the housing market.

A relatively new topic for home resale, it appears that a strategy called “interest rate buy-down” has become more prevalent in the housing market of recent years. This method, as described in detail by Harney, involves the seller making a cash payment to the buyer's lender in order to lower the buyer's interest rate and thus reduce the size of monthly mortgage payments. In this way, both sides win.

Since the buy-down lowers the monthly payments, the buyer is able to afford a higher sale price on their dream home. Since the buyer pays more than they would have previously paid, the seller has the capital necessary to pay off the lender. The more a seller buys off, the lower the monthly payments are and the higher the sale price a buyer can afford. An extra positive for the seller: the money they pay for the interest rate buy-down is a deductible expense under IRS rules!

While buy-downs may be the way of the future for some, other buyers prefer a lower sales price than lower mortgage rates. Furthermore, according to Harney, a buy-down of half a percent of the mortgage price could cost the seller two percent or more, thus lowering net income and making the scenario less than ideal.

Basically, although an interest rate buy-down isn't the best choice for all sellers and buyers, it certainly should be available for those who want it. While a mortgage buy-down may mean a higher sale price, the lower interest rates and monthly payments can definitely make the trade-off worthwhile. That being said, if interest rate buy-downs sound interesting to you, look into it and talk to your local loan officer to find out more!

***************************************************************************************************
Find out more about us at www.sepulvedaescrow.net. Any Questions? Contact our Escrow Expert! Sepulveda Escrow Corporation (818) 838-1831. Follow our company on FacebookTwitterLinkedIn, and Google+.
***************************************************************************************************

No comments:

Post a Comment