Mortgages: Kicking The Can Down The Road

On Mortgages: Buy-Downs Increasing

This sounds familiar:

Mortgage Buy-Downs–a New Trend for 2023?

With interest rates currently hovering around 7 percent, many lenders across the country have seen a resurgence of the mortgage buy-down—a plan that allows potential homeowners to save money on monthly mortgage payments.

The National Association of Mortgage Brokers (NAMB) describes a mortgage buy-down as a type of financing that provides lower interest rates for at least a few years of the mortgage. They typically are offered by the home seller or builder who contributes to an escrow account that subsidizes the loan during the first few years.

In a 2-1 buy-down, homebuyers can save on interest rates for the first two years of the loan, but will pay the full interest rate at the time of signing for the third year. A 3-2-1 buy-down operates under the same principle: lower payments for the first three years and full interest for the fourth year of the mortgage.

“I’ve seen this a lot in the past, and it’s a way for the consumer to be able to purchase the home they want when increased interest rates would make their mortgage payments too high,” Ernest Jones Jr, NAMB board president told The Epoch Times. “If the buyer is willing to offer the seller more for their home, the seller will sometimes make concessions in the form of a buydown.  However, the home still has to appraise for the higher amount.”

For example, if a buyer opts for a 2-1 buydown, the interest rates will be 2 percent below the current rate for the first year, and 1 percent below for the second year before rising to the regular, permanent rate. In the event that the market’s interest rates drop by the third year, the buyer always has the option to refinance.

“Before this recent turn in the economy, most of the time sellers didn’t have to make any concessions,” Jones said.  “People were just rolling in and paying above market prices. Now things are starting to change and sellers may be willing to help buyers more with the purchase, especially if they’re in position where they need to move quickly.”

This is very similar to what happened in 2008. The same plague is showing up again.

The catch with a buy-down is you can’t refinance effectively if the house price drops and your equity is wiped out. You are also at the risk of rising interest rates, which have happened and are happening.

Supposedly, some million homebuyers are expecting to have these come into effect this year. Which would mean a lot of homeowners are going to have a much higher mortgage each month really soon. Many more dupes are presently signing up for them en masse because otherwise they cannot afford a mortgage.

The entire process of a buy-down is a form of kicking the can down the road. Can’t handle the problem now, so we just push it off until later.

Which is exactly what the entire United States government has been doing when it comes to our debt-based monetary system. Just find ways to put off all the issues. Indefinitely.

Until we cannot anymore.

A similar thing is happening here. They can’t afford the mortgage now, so they try to put it off for a few years.

Well, if interest rates go up like they did, homebuyers then have even less ability to pay the mortgage. Thus, default. Tie it in with a few other things going on and we could have another ’08, or worse.

This is a way for real estate agents, builders, and banks to still get mortgages while putting off any major fiscal problems for the future. Complete insanity.

But to be expected, given America’s current condition.

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