To stimulate new loans, mortgage companies have started marketing products in which borrowers can “buy down” rates by paying several thousand dollars for a year or two of significantly lower interest.
Experts caution that mortgage transfers from seller to buyer can come with risks. When Matthew Kilboy listed the Washington, D.C., condominium that he and his husband had bought in 2017, they accepted that higher interest rates and a soft market for condos meant any dollar over the $529,000 they had paid was a dollar they would thank their lucky stars for.
Because so little is for sale, home prices have remained stable, and even resumed their ascent, despite a huge increase in borrowing costs. The refrain among real estate agents and economists is that anyone who secured a mortgage rate of 3% or lower owns a valuable asset that they are loath to give up.But every asset has a price. And now an emerging cadre of investors and real estate agents are trying to, in effect, sell mortgage rates from several years ago by transferring them to new buyers.
“It’s just too appealing,” said Scott Trench, CEO of Bigger Pockets, adding the disclaimer that many of these strategies frequently involve extra risks and paperwork that most people are unfamiliar with. Or consider a homeowner who has a low-rate mortgage but has paid a chunk of it down: To assume the loan, a buyer would have to come up with a large down payment to account for the seller’s equity — something that very few people can do.
One of the more popular products is a “2/1 buy-down,” in which a borrower pays for an interest rate reduction of 2 percentage points during the first year and 1 percentage point in the second.
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