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Pat Savani

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Maximize purchasing power with a buy down

01-19-09
Pat Savani

In Maryland as with much of the country we have an over supply of inventory but now low interest rates may help us move our inventory. Maryland in spite of the negative national economic news still enjoys unemployment below the national trends with a rate of less than 6%. Maryland's major employers are the federal government, defense contractors, healthcare and education. Maryland for the 2nd year in a row was rated the richest state in the nation in 2008.

Historically low interest may help reduce the inventory.

  • Low interest rates has generated renewed interest home buying.
  • Additionally, interest rate buy downs have the potential of leveling off home prices.
  • When a seller pays an additional point to drop the buyer's interest rate 1% for the life of the loan it can be a win for both the buyer and the seller.
  • As an example a $450,000 loan amount with a 30 year fixed rate has a principal and interest payment of $2697.98, at 5% the payment drops to $2415.70. At 6% for 30 years a principal and interest payment of $2415.70 amortizes a loan amount of $402,918.50.
  • Assuming the property is close to being at market value it's a better buy for the seller to pay a point in this example $4500.00 and buy down the rate than reduce the price by 1% rather than reduce their sales price by $48,000, which they are probably unable or unwilling to do any way.
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