Save on your mortgage payments with RateReduce
Over the last two years, mortgage rates have been hovering near the highest they’ve been this century. Over the same time period, home prices have risen to their highest point as well. This has made it harder and harder for homebuyers, particularly first-time homebuyers, to afford buying a house.
We’re committed to helping as many people as possible realize their dream of homeownership. That’s why we’ve created special loan programs designed to help buyers tackle the housing affordability crisis. Our RateReduce loan program* offers different ways to save on your monthly payments, including an option that can help home sellers make their listing more attractive to buyers.
For more details about RateReduce, keep reading. Or you can get the mortgage process started with our online application.
What is RateReduce?
We have created the comprehensive RateReduce program to give buyers smart and accessible options to lower mortgage payments, and give sellers a competitive edge in an ever-changing market. All RateReduce options are what’s known as a buydown.
What’s a buydown?
A buydown, like RateReduce, is what’s known as a seller’s concession. The seller of the home can contribute to the buydown to lower the monthly mortgage payments for the buyer. It’s a great way to increase the chances of selling the home by making it more attractive to buyers.
There are three different types of buydowns that are part of RateReduce:
- RateReduce Temp
- RateRduce Perm
- RateReduce Sell**
Each of these can help both buyers and sellers land on a deal that works for them, but in slightly different ways. In order to use any of the RateReduce loans, the seller of the home has to offer to fund it. In the case of new construction, the builder can offer to fund the buydown.
It needs to be included in the purchase contract as a seller concession. The amount of money that the seller or builder is pre-paying for the buydown, normally called the concession, is paid during closing.
How RateReduce Temp works
The word “Temp” in RateReduce Temp is short for “temporary” and refers to how long the buydown affects the mortgage rate. A temporary buydown reduces your interest rate on your mortgage for the first few years of your loan.
We offer five types of temporary buydowns through RateReduce Temp. The most common is called a 2-1 buydown, but there’s also a 3-2-1 buydown, 1-1-1 buydown, 1-0 buydown and 1.5-0.5 buydown. They all offer a period of time with a lower rate and work similarly.
You’ll notice that their names correspond with the periods of lower rates—so a 3-2-1 Buydown offers a 3% lower rate for the first year of mortgage payments, a 2% lower rate for the second year and a 1% lower rate for the third year. After the initial three years, the borrower will make payments at the note rate for the rest of the loan term.
Here’s how each option could work with a 30-year mortgage, as an example:
3-2-1 Buydown
- 3% lower year 1, 2% lower year 2 & 1% lower year 3
- Fixed at Note Rate years 4-30
- At 6.875%, the seller concession is about 4.5% of the loan value
2-1 Buydown
- 2% lower year 1 & 1% lower year 2
- Fixed at Note Rate years 3-30
- At 6.875%, the seller concession is about 2.2% of the loan value
1-1-1 Buydown
- 1% lower years 1-3
- Fixed at Note Rate years 4-30
- At 6.875%, the seller concession is about 2.3% of the loan value
1-0 Buydown
- 1% Lower than Note Rate Year 1
- Fixed at Note Rate years 2-30
- At 6.875%, the seller concession is about .75% of the loan value
1.5-.5 Buydown
- 1.5% lower year 1 and .5% Year 2
- Fixed at Note Rate years 3-30
- At 6.875%, the seller concession is about 1.5% of the loan value
RateReduce Temp can be applied to many different loan products, like a 15- or 30-year fixed-rate mortgage and adjustable rate mortgages (ARMs). And you can combine RateReduce with a FHA or VA loan, as well.
Get fixed savings with RateReduce Perm
As you might suspect, the RateReduce Perm is a more “permanent” version of buydown than RateReduce Temp. While the reduced mortgage rate of RateReduce Temp applies to the first few years of the mortgage, the Perm option will keep mortgage rates down over the entire term of the loan.
Why RateReduce works for sellers
You may be wondering why a seller would agree to pay extra to provide a concession to the person buying their home. Essentially, why would a seller help with the buyer’s mortgage?
It makes sense when you compare the benefits of RateReduce Temp and RateReduce Perm to the alternative of reducing the listing price.
The seller is able to keep their asking price the same instead of agreeing to take less on the sale of the home. They can help the borrower save over the life of their loan, sometimes for less than what it would have cost to reduce the price of their home. That allows the seller to possibly net a greater profit once the deal closes.
The seller can use this approach to make their home more desirable to buyers, particularly if they secure the buydown before going under contract. They can do that with our third option, RateReduce Sell.
The benefit of RateReduce Sell
Let’s say you’re selling your home. In order to keep the math simple, let’s say you’re selling a home at $1,250,000 so that a potential buyer could put 20% down, meaning they’ll be seeking a loan of $1,000,000. In order to entice potential buyers and get your house off the market quickly, the seller can choose to use RateReduce Sell. This allows the seller to market the reduced rate on our branded property listings.
Let’s take a look at three different options: leaving the listing price unchanged, reducing the price and RateReduce Sell. In this scenario, let’s assume you qualify for 6.875% mortgage rate like we did above.
| Price unchanged | 5% price reduction | Buydown |
Purchase Price | $1,250,000 | $1,187,000 | $1,250,000 |
Loan Amount | $1,000,000 | $949,600 | $1,000,000 |
Seller contribution | $0 | $62,500 | $20,000 |
Mortgage rate | 6.875% | 6.875% | 5.88% |
Monthly cost (principal and interest) | $6,566 | $6,235 | $5,915 |
Potential monthly savings | $0 | $331 | $651 |
Rate Reduce option available from participating builders and sellers on select properties. Sample rates are national averages provided for illustrative purposes only and are not advertised rates. The 1.5/.5 buydown option is not available for VA loans. Restrictions apply. Contact us for more information and up to date rates.
As you can see, working with a loan officer to include RateReduce Sell as a part of the sale of your home could make a big difference in attracting more buyers.
How RateReduce Sell works
The seller agrees upfront to cover the cost of the buydown, along with an upfront fee, and locks in the rate. The seller can now advertise the bought down rate, using our branded materials, to potential buyers. Once a buyer is found, a purchase contract is signed and the buyer submits their application to us, the rate lock will be transferred to the buyer.
The RateReduce Sell program allows a seller to secure a lock for 60 days while they search for a buyer for their home. The first 30 days are dedicated to finding a buyer, then the second 30 days allow the buyer to close the loan.
Great ways to make your mortgage more affordable
RateReduce is a gamechanger for homebuyers looking to lower their monthly mortgage payments. And with three different options, this gives you so many ways to approach a seller and ask them to help close the deal. Work closely with your agent, who’ll know how to help share the benefits of the RateReduce program with a seller.
Start your application today to get on the path to home ownership with a reduced mortgage rate or contact a loan officer to get additional information.
* Buy down options are available from participating sellers and builders on select properties.
** Sellers may sign a RateReduce Sell Agreement with Rate to secure a 60-day rate lock on seller's departing residence by paying an upfront fee (higher fee for high balance loans): rate will be locked for 60 days; giving the seller 30 days to secure a buyer and the buyer 30 days to close the loan. Seller is required to contribute seller-paid points which must be applied towards a permanent rate buy down only. The seller must make a minimum buydown contribution of 2% and could elect up to a 9% buydown contribution subject to applicable state and federal laws, product guidelines, and future product eligibility if changes occur prior to closing. Upfront lock fee may be refundable if the buyer's loan closes. If the lock expires, is cancelled, or if the borrower withdraws and a new borrower is not found within the lock time parameters, then the upfront fee will not be refunded to the seller. Eligible for fixed rate, purchase transactions only. Seller must acquire a binding purchase contract for departing residence. Minimum FICO score and down payment requirements apply. Applicants subject to credit and underwriting approval. Buyer's interest rate may be higher depending on their qualifying information. Additional restrictions apply.
Applicant subject to credit and underwriting approval. Not all applicants will be approved for financing. Receipt of application does not represent an approval for financing or interest rate guarantee. Restrictions may apply.
Savings, if any, vary based on the consumer’s credit profile, interest rate availability, and other factors. Contact Rate for current rates. Restrictions apply.