US home sellers turn to mortgage rate buydowns as high rates slow home sales

Many US home sellers are turning to mortgage rate buydowns as high interest rates slow home sales, according to recent data. With fewer buyers on the market, sellers are offering financial incentives to help attract potential purchasers. These concessions include paying closing costs, providing cash to lower mortgage rates, or even offering money to reduce interest rates on loans.

Mortgage rate buydowns have become particularly popular among sellers looking to close deals. The buyers pay upfront to reduce the interest rate on a mortgage, which can help them save money on monthly payments. In a 2/1 buydown, for instance, the interest rate is reduced by two percentage points in the first year and one percentage point in the second year, returning to the original rate in the third year.

This arrangement can save buyers hundreds of dollars per month, especially in high-rate environments. For example, a $10,000 reduction in the interest rate on a $400,000 home loan could save the buyer about $135 per month over the life of the loan. Some sellers are even combining price cuts with concessions, with nearly 20% of sellers offering both in September.

However, sellers cannot provide unlimited assistance, as conventional mortgage rules limit concessions to 3%-6% of the home's sale price.