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  • Jamie Koehler

Attract Buyers With A 2% Lower Mortgage Interest Rate

Motivate buyers to buy your house - help them get a 4.6% rate today instead of the market rate of 6.6%. Take the elevated mortgage interest rate off the table for prospective buyers by offering to participate in a 2-1 Buydown Loan where the buyer will benefit from lower mortgage interest rates for the first two years of their loan.


I've been in the Baltimore real estate industry since 2008. Prior to becoming a full-time realtor in 2018, I spent eight years operating a large rental portfolio consisting of more than 700 single-family homes in the Baltimore area. During this time, I learned what it really meant to operate real estate, how to boost income and limit expenses to realize the most profit possible. Now, I help sellers in the Baltimore area do the same when selling their homes. I stress to sellers that time is money. Every day your home sits on the market, you, the seller, are continuing to pay expenses. Furthermore, the longer the home sits on the market, the more likely it is that new buyers entering the market will pass it over believing that there must be something wrong with it that has prevented it from selling. My focus is helping sellers sell quickly and for top dollar.


The Elevated Mortgage Interest Rate Is The Main Objection Baltimore Area Buyers Have To Buying Now

The recent changes in the real estate market may have you as a seller asking "How can I get more interest in my house when the mortgage interest rate is high?" The main objection to would-be buyers moving forward with a home purchase today is the mortgage interest rate. Sitting at 6.6% as of December 20, 2022, some would-be buyers have halted their search given that for the cost of their would-be monthly mortgage, they can rent a place with better finishes or amenities. Or, the would-be buyers currently own their homes and have a lower interest rate on their existing mortgage than they could get on a new mortgage, preventing those buyers from upgrading unless there’s been a major change to their incomes. So, address their concern head on.

How Can Baltimore Sellers Overcome The Mortgage Interest Rate Objection?

So how can you overcome this objection? In the wake of the mortgage interest rate hikes, lenders have offered creative solutions for buyers who need to move. Enter the 2-1 Buydown Loan. What is a 2-1 Buydown Loan? With a 2-1 Buydown Loan, the new buyer’s mortgage interest rate for the first year of the loan is 2% lower than today’s market rate. For the second year of the loan, the buyer’s mortgage interest rate is 1% lower than today’s market rate. For the third year of the loan and thereafter, the buyer’s mortgage interest rate resumes to today’s market rate. So, if today’s mortgage interest rate is 6.6%, for year one the rate would be 4.6%, for year two the rate would be 5.6%, and for year three and thereafter, the rate would be 6.6%. If the market changes and the mortgage interest rate improves (and drops below 6.6%), the buyer can refinance their home at any time.


How Does A 2-1 Buydown Loan Work?

The 2-1 Buydown Loan only works with the aid of the seller. For the buyer to achieve the lower interest rates in year one and year two, the rates for those first two years essentially need to be “bought down”. Generally, the 2-1 Buydown requires a 2% seller concession at closing. So, for example, if the home you are selling costs $250,000, 2% would be $5,000. If you agree to the 2% seller concession, there will be a $5,000 reduction in your proceeds on closing day. That $5,000 will fund the buydown for the buyer’s loan, enticing the buyer to move forward with the loan to purchase the home when they otherwise may not have been motivated to.

Why would I suggest a 2-1 Buydown if I’m trying to protect your bottom line? Time is money. Every day that your home sits on the market, it could be holding you up from moving to your next home and it’s definitely costing you your monthly mortgage, property taxes, homeowner’s insurance, utilities, and upkeep. For sales that closed in November 2022 in Baltimore County, the average days on the market before contract acceptance was 23. For sales that closed in November 2022 in Baltimore City, the average days on the market before contract acceptance was 34. With buyer demand being lower than it has been in recent years, homes are taking longer to go under contract. Offering to contribute to a 2-1 Buydown for a buyer may give you a competitive advantage over a seller who would not be willing to participate in a 2-1 Buydown, thus allowing you to sell your home faster than others, and therefore saving money on the above-mentioned expenses. Shouldn’t the buyer be aware of the 2-1 Buydown and just ask for it? Not necessarily. Purchasing a home is not an everyday occurrence for homeowners. Many times, homeowners don’t start to get educated on the real estate market until they are ready to buy. Even then, they are not necessarily experts on the tools that may be available to them. Some lenders don’t offer 2-1 Buydowns. Some realtors aren’t aware that they exist. And so, it’s quite possible prospective homebuyers don’t know they exist. Offering to participate in one, may set your home apart from others.


Get More Interest In Your Home And Sell It Faster; Market Your Willingness to Participate In A 2-1 Buydown Loan

The difference in a 6.6% mortgage interest rate today and a 4.6% mortgage interest rate equates to several hundred dollars of a difference in a monthly mortgage payment for a home that's even $250,000. Spotlighting that difference to prospective buyers and your willingness to help them secure a lower rate today can help you stand out among the competition and motivate a buyer who may have otherwise resigned to halting their housing search.

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