With mortgage rates on the rise, lenders are implementing various strategies to attract new buyers and stay competitive in the market. Here are some of these strategies to be aware of:
Temporary Buydowns
Temporary buydowns provide a lower introductory rate on fixed mortgages for the first year; after that, it bounces back to the original mortgage rate.¹ Be aware of what the original mortgage rate is as it could be significantly higher.
Cashback Incentives
Cashback incentives typically involve the lender providing a certain percentage of the loan amount back to the borrower at the closing of the mortgage. However, you should carefully evaluate the terms and conditions of these incentives, as they may be subject to certain restrictions or limitations.
Flexible Loan Programs
Flexible loan programs can include adjustable-rate mortgages (ARMs) which offer a fixed interest rate for an initial period before transitioning to an adjustable rate.¹ There are also hybrid loans that provide borrowers with a fixed interest rate for a predetermined period, such as five or seven years, before converting to an adjustable rate.¹
While these strategies can provide short-term benefits, it’s crucial for buyers to thoroughly evaluate the terms and consider their long-term financial situation before making a decision. Consulting with a mortgage professional is always advisable to make informed lending decisions that align with individual circumstances and goals.
Sources:
¹ Bernard, T. S. (2022, September 29). Confused by the New Mortgage Gimmicks? Here’s a Guide. The New York Times. https://www.nytimes.com/2022/09/29/your-money/mortgage-guide-home-buying.html. Accessed 10 July 2023.