When Should a Seller Buy Down the Interest Rate for a Buyer?
A home seller can buy down the interest rate for a buyer rather than lowering the asking price. Learn how seller-paid buydowns work and how much they cost.
If a child can’t reach an apple on a tree, do you lower the branch or give them a step stool? This is the concept behind the question, “When should a home seller buy down the interest rate for a potential buyer?”
High interest rates have left many buyers stretching to afford today’s monthly mortgage payments. To close a deal, you might receive a request to lower your asking price. However, a seller-paid rate buydown can give buyers a step up by reducing their monthly payments, which can allow you to walk away with more proceeds.
To help you decide if this tactic is right for your situation, we spoke with Claire Paris, a top Portland real estate agent with more than 23 years of experience. She says a well-structured buydown offer can make a difference.
Ask a Top Agent if You Should Offer a Rate Buydown
Sellers can often retain more proceeds by offering a buyer an interest rate buydown rather than lowering their home’s sale price. A top agent can determine which strategy is best for your situation. Our free Agent Match tool analyzes over 27 million transactions and thousands of reviews to find you a trusted, experienced local agent.
How does a seller-paid rate buydown work?
In a seller-paid mortgage rate buydown, you offer to cover some of the buyer’s loan costs to lower their interest rate. This helps reduce the buyer’s monthly payment, which can be a big incentive in today’s market where affordability is tight.
Paris explains that there are two types of rate buydowns: temporary and permanent.
“Most people, when they think of a buydown, think of a permanent buydown, which we call ‘paying points.’ A seller-paid temporary buydown is where the seller pays money to the lender upfront, and it artificially lowers the buyer’s interest rate and payment for some defined period of time.”
Permanent buydowns, where a lower interest rate is secured for the entire loan term, are more commonly associated with offers from builders and lenders. So, for the sake of this post, we’ll focus on seller-paid temporary rate buydowns.
When should a seller offer to buy down the interest rate?
Paris says seller-paid rate buydowns can be effective, but they’re not one-size-fits-all. They tend to work best when affordability is the main hurdle for buyers — and you’re trying to compete without slashing your price.
“It’s often something that agents are going to talk about, especially if the buyer’s agent says something like, ‘Oh, my clients love the home, but their monthly payment is just too high.’ That’s when I would say, ‘Well, have you looked at a temporary rate buydown?’ That could help get the payment to a level that the buyers could be comfortable with.”
Consider offering a rate buydown if:
- Your home has been listed longer than average. If showings have slowed or offers aren’t coming, a buydown may renew interest.
- Buyers are hesitant due to high monthly payments. If you’re getting feedback about affordability, a lower rate might be the key motivator.
- You’re competing against new construction. Builders often use buydowns to close deals, and you can do the same to stay competitive.
- You’re in a slower market. If inventory is high and buyer activity is low, incentives can help you stand out.
