What Is It?
A mortgage buydown allows you to pay an initial lump sum to your lender in exchange for a lower interest rate on your mortgage. So, you are essentially “buying down” your mortgage’s interest rate. The interest rate reduction typically only lasts for the first 1 to 3 years of the mortgage, but can sometimes last for the entirety of the loan.
With the average interest rate for a home currently well over 6%, this financing strategy is becoming increasingly popular, as it provides homeowners a lower monthly payment on their homes.
Varying Structures
There are several different forms mortgage buydowns might take. What’s known as an evenly distributed rate reduction is essentially the same as a permanent rate buydown. So, while you pay more up front, a lower rate applies for the life of the loan, benefiting buyers who plan to own their homes for a long time.
The temporary approach, which is more affordable, comes in the form of a 3-2-1 buydown, or a 2-1 buydown. In the 3-2-1 approach, year one offers the lowest rate, with a gradually increasing rate in years two and three. From year four through 30 – the most common term – the rate is fixed at the permanent amount.
The 2-1 structure is identical, except you’re paying the permanent rate by year three. Both upfront cost and total savings will be less than a distributed rate reduction or 3-2-1 buydown.
Pros and Cons
Using a mortgage buydown can be an effective strategy to help make moving into your preferred home more affordable. On top of that, in certain cases, you can even use the cost of your buydown as a tax deduction.
However, remember that, in most cases, the interest rate reduction is temporary. You’ll need to meet the full monthly payments at some point, even if it’s years down the road. The last thing you want to do is buy down a mortgage that you can’t afford, only to struggle with the payments once you’re settled in your new home. So, consider how much you stand to save from a mortgage buydown compared to full monthly payments – and if you can manage both – before you buy.
That said, the next time that you’re shopping for a home, be sure to ask your lender about mortgage buydowns. It might be just what you need to seal the deal.
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This article originally appeared on SoFi.com and was syndicated by MediaFeed.org.
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7 fun ways to save money
Whether you’re building your emergency fund or putting a portion of your paycheck away for you and your family, chances are you’re saving money. It’s possible this all-important financial habit can feel tedious and boring, but with a little creativity and determination, saving can be interesting, dynamic and exciting.
Related: 50/30/20 rule demystified
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Not sure how to make saving money fun? You could start by identifying your goals. Are you saving up for a big purchase, like a down payment on a house? Are you saving for your child’s future education?
Once you’ve figured out what you want to accomplish, you could determine a target amount of money you’d like to save. While this number might change over the course of your savings journey, you can always readjust your plan.
If you have an idea of how much money you’d like to work toward saving, you can consider diving deeper into your finances to pinpoint realistic objectives.
Once you’ve reviewed your individual financial circumstances and have a better idea of your savings goal(s), you could try these fun ways to save money.
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With the right company, even the most mundane tasks can be enjoyable. You could talk about your savings goals with your friends and family members to potentially identify a saving buddy with similar objectives.
An ideal saving buddy will be supportive of your financial goals, flexible about changing plans in order to accommodate your specific savings needs and have a positive money mindset.
Checking in with your buddy regularly could help keep you both on track and you can celebrate each other’s accomplishments. If you’re stressed about how to make saving money fun, you could brainstorm creative tactics with your saving buddy and implement them together.
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Saving money does not have to be synonymous with missing out on exciting opportunities around you. You could enjoy free activities offered in your area.
Perhaps your local park offers free theater performances or concerts in the summer, or your area bookstore hosts interesting literary panels and author discussions with no attendance fee. Think about the resources provided by your local library, such as book clubs, language exchange programs, craft nights and movie screenings.
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A potential hands-on and fun way to save money is adopting a DIY (do-it-yourself) attitude. You could create things using materials you already own instead of buying new products. When meal-prepping for the week ahead, think about recipes that incorporate ingredients you already have in your pantry.
You could make your own household cleaners out of vinegar, lemon rinds and herbs or face masks and toners using fresh ingredients like avocado, tea, honey and oatmeal. There are ways to reuse materials that might otherwise be thrown out or recycled: Newspapers and coupon booklets could make great wrapping paper, and old cereal boxes might be repurposed into desk organizers.
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If you’re looking to break up the monotony of saving, you could consider incorporating games and challenges into your overall savings plan. A friendly competition with your saving buddy could be seeing who can save the most money every week, month and/or year.
Creating small rewards for reaching your goals might be an incentive, too. (Bonus points if these rewards are free!) No-spend weeks, where you refrain from spending any money for seven days, also might help with saving. You could make it fun by taking out a $20 bill from the ATM at the beginning of each month, for example and not spending it.
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Getting serious about saving money doesn’t mean you need to give up “luxuries” such as exercising, new clothes and accessories, or home goods. Trading skills and swapping goods are two potential examples of how to make saving money fun while not depriving yourself of the things you want.
You could go to your favorite yoga studio and ask if they have a work-trade program where you can clean or complete administrative duties in exchange for classes. A clothing swap with your friends could refresh your closet at no cost. You might also consider an informal exchange with skilled friends.
For example, if you’ve been eyeing an original painting from your artist pal but don’t have the funds to pay her, you could offer your website design services (or some other helpful skills) for the painting.
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Sometimes, cutting down on expenses might not be the most effective way to reach a savings goal. It might be easier, in some cases, to make a bit more money than to reduce costs, especially if you are spending more than 50% of your income on non-discretionary expenses like groceries and debt payments.
A financial advisor can help you determine if increasing your income is an appropriate action based on your individual financial profile.
If so, you could reflect on your particular skills and/or hobbies to see if there is a way to translate one of them into an income stream.
For example, if you love to knit, you could start an online store for your yarn creations. If you have a knack for stringing words together, you could offer your writing or editing services in a freelance capacity. A successful side hustle could help bring additional money into your bank account and add more fun and enjoyment in your life.
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Putting away money for your future does not need to be a boring task; there are countless fun ways to save money that could be customized to your specific financial needs and wants.
Starting to save today—even in small amounts—might help prepare you for even more fun in the future.
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This article originally appeared on SoFi.com and was syndicated by MediaFeed.org.
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Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.
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