Duplex Mortgage Rates Are Climbing -Here’s How They Don’t Have To.

After the mortgage rate increased the other day, a buyer’s agent called to tell me his client could no longer qualify to buy one of my listings. The increased interest rates simply made the property unaffordable for her.

I suggested we structure the deal to buy down her rate.

Mortgage interest rates have been low for so long that many agents who’ve been licensed for less than a decade have no reason to be familiar with this practice.

A permanent buydown means paying discount points at closing in exchange for a lower rate for the life of the loan. One point equals 1% of the loan amount and commonly lowers the rate by around a quarter point, though pricing varies by lender and by day. On a $400,000 loan, one point costs $4,000.

The question is how long it takes to earn that back. If the lower rate saves you $65 a month, your break-even is a little over five years. Plan to hold the property longer than that, and the points pay for themselves. Plan to refinance or sell sooner, and they don’t.

A temporary buydown, often called a 2-1 buydown, lowers your rate by two points in year one and one point in year two before settling at the note rate in year three. It’s a cash-flow bridge, not a permanent fix. It works best for house hackers who expect rents to rise or who plan to fill a vacant unit during those first two years. Underwrite the deal at the full note rate, not the teaser rate.

The best version of either strategy is the one the seller pays for. Which brings us to the next point.

In a softer real estate market, sellers get more flexible. As a result, many buyers assume they should just try to buy the property at a lower price.

Often the smarter ask is a seller credit aimed at your rate. A $10,000 price reduction saves you roughly $65 a month. That same $10,000 put toward points or a temporary buydown can save you far more, especially in the early years.

How much a seller can concede toward closing costs and prepaids depends on loan type, occupancy, and down payment. FHA allows up to 6% of the price. Conventional loans on investment property cap concessions at 2%, while owner-occupied conventional loans allow more as your down payment grows.

As the market changes, the tools we use to make a sale work for all parties may require us to blow dust off the tools from the past.