mortgage rates are double where they were a year ago making home buying a much more costly endeavor home sellers are trying to help them out buyers are not feeling the market depressing mortgage demand rates are hovering at around 7 which adds hundreds of dollars in additional monthly payments for prospective buyers’ budgets even though the number of forsale homes is growing they’re still expensive creating affordability issues for buyers some builders and sellers are getting more creative and offering ways for potential home buyers to lower their mortgage rate and monthly payments “there are programs out there today like something called a 21 buydown or a 321 buydown” michael isaacs the ceo of go mortgage told marketwatch on the sidelines of the mortgage bankers association annual conference in nashville tenn last week the 21 and 321 temporary rate buydowns are mortgage products that offer lower rates in the first few years of repayment after which they permanently reset to the higher market rate mortgagerate buydowns in particular are becoming popular particularly since housing costs have risen significantly she added the 321 temporary rate buydown works like this when a seller or builder pays some amount of money upfront to buy the rate down that rate goes from 7 where it is today to 4 at the start of the payment period then after a year that rate goes up to 5 the following year 6 and then 7 “so you can buy it down 3 points the first year 2 points the next year 1 point and then in the fourth year it goes to its normal rate” isaacs elaborated or a seller can offer a 21 buydown which has two periods of adjustment it begins at 5 then 6 after a year then 7 or market rate “because a lot of people think that rates will be lower two years from now it’s a good way psychologically and economically to get into a house at a start rate that’s lower than where rates are today” isaacs said they are not new products but they’re gaining popularity as rates are now more than double what they were a year ago generally these rate buydowns are paid for by the home buyer where they set aside part of their down payment or the home seller or homebuilder can offer it as a negotiating tactic ali wolf chief economist at zonda research a realestate research company told marketwatch that her firm’s data is showing an uptick in builders offering these buydowns “home sellers are figuring out how to attract and retain buyers in today’s slower housing market” wolf said “homebuilders in particular are in a place to offer incentives to help buyers incentives come in many forms including funds towards options and upgrades discounted closing costs and mortgagerate buydowns” data from zonda shows that over half of actively selling newhome communities are offering incentives as of october wolf said and 80 of homebuilders are upping their incentive offerings isaacs said in some cases realestate agents who work with sellers introduce the idea of offering a rate buydown especially if the home is sitting on the market for longer than usual the agent asks the seller whether they want to market the house through a lower interest rate and these agents sometimes come to companies like his to ask for such products a year ago rate buydowns weren’t as common due to the low mortgage rate and so his company didn’t see any requests come in but “today 3 4 of our loans have a 21 buydown but it’s growing” isaacs said “and if rates stay where they are right now i think it’ll grow to where it’s probably much more common 12 to 15” aside from these rate buydowns that are done with builders and sellers consumers have always had the ability to bring their rate down themselves through “points” wolf noted in other words pay the points on your mortgage and bring down the rate but since the market is slowly tipping in buyers’ favor “the dynamics are changing” wolf said “builders are willing to pay the points to buy down the mortgage rates to help consumers with affordability” she said “better affordability means more home sales so builders are incentivized to help” ‘everybody’s asking about an arm’ another option more homebuyers are turning to is adjustablerate mortgages or arms according to the mortgage bankers association’s latest weekly report arms consisted of nearly 12 of mortgage activity “everybody’s asking about an arm” isaacs said the 30year mortgage with a loan balance of 647200 or less averaged 706 as of oct 28 the mba said the average rate for the 51 arm was 579 a 51 arm is a type of mortgage that has a fixed interest rate for the first five years after which it becomes a variable rate mortgage which is adjusted based on market conditions “arms have a stigma from the financial crisis because a lot of people lost their homes because they got into an arm” isaacs said “when the arm adjusted they couldn’t afford their mortgage payment” but today’s arm is a lot different he stressed “it’s a fairly safe product today as long as you understand the risks that your payment could go up” isaacs said and “if five years from now rates are the same or higher than they are today typically what somebody would do when your rate expires they just go refinance into another arm …something with the rate that you can afford and then wait out the market again” he added arms can be risky especially if the mortgage borrower sees their payment spike when the fixed lower rate period ends as marketwatch reporter leslie albrecht wrote earlier this year some builders are choosing to offer an adjustablerate buydown wolf added rules now ask borrowers to prove that they can qualify for the higher payments once the mortgage rate adjusts and if you’re a homebuyer the best way to get the lowest rate is to call 10 lenders isaacs advised “call 10 lenders go online look at every lender out there call your local banks local credit unions” isaacs said but “if you’re on a fixed income social security you might not want to do an arm” he added in late september freddie mac’s fmcc chief economist sam khater had the same piece of advice for homebuyers he said the agency’s weekly survey of mortgage rates then showed a wide range of quotes for the 30year fixedrate mortgage “the large dispersion in rates means it has become even more important for homebuyers to shop around with different lenders” khater stressed got thoughts on the housing market write to marketwatch reporter aarthi swaminathan at aarthimarketwatchcom