So you’re selling your house and have an offer but it is not what you were hoping for. Instead of countering up, how about buying down the interest rate for the buyer?
This can be a more effective way to reduce the cost of the loan and maintain pricing on comparables, while keeping the neighborhood value strong. See my previous post on “Tips for Sellers”.
How this works is you can either offer to pay for the rate for 1-2 years, or for the life of the loan.
Year 1: the buyer obtains an interest rate 2% below the prevailing market rate
Year 2: the buyer obtains an interest rate 1% below the prevailing market rate
Year 3: the loan returns to the current market rate for the remainder of the loan (or the customer might consider refinancing depending on the rates at the time)
It’s a win, win! This saves the seller money compared to doing a price reduction and at the same time, gives buyers a deeply discounted rate in the first 2 years of home ownership. For a $350K mortgage, a 2 percent seller’s credit would save the seller about $10,000 vs dropping the sales price by $17,500.
Alternatively, sellers may consider buying down the rate for the life of the loan. While this is going to cost more, it may make sense in certain situations and may save money at the end of the day.
The rate “buy down” should be noted in the terms of your purchase and sale agreement in seller costs as “Seller to pay X% of purchase price towards buyer’s closing costs”.
The team at Bank of England Mortgage have an excellent overview presentation on this and are a good resource to discuss this with further. Let me know if I can put you in touch!
