United Wholesale Mortgage (UWM) this week launched temporary rate buydowns, a product that allows borrowers to receive lower mortgage rates at the beginning of their loan terms by using seller concessions as part of the payment.
It’s a complementary product to the wholesale lender’s “Game On” initiative, a cut-rate pricing strategy devised to grow market share with purchase buyers. It comes at a time in which the housing market favors buyers and seller concessions become more frequent.
With the buydown, the borrower pays a lower mortgage rate during the first year or two of the mortgage and, after that, the full rate is paid for the remainder of the loan term. For example, if the market average for a 30-year fixed-rate mortgage is 5.22%, the borrower could use seller concessions to lower the rate to 3.22% in the first year, 4.22% in the second year and then pay 5.22% from year three through 30.
The temporary lower rate in the product is usually reduced due to the deposit of a lump sum of money into a buydown account, which is released monthly to compensate the borrower’s lower payments. Seller concessions, which are closing costs the seller agrees to pay, are deposited as the lump sum into the buydown account.
According to UWM, this is an ideal option for borrowers who expect an increase in their income in the next few years or who have seller concessions to use and want to take advantage of a low rate up front.
The UWM’s product is available for conventional primary and secondary home purchases as well as Federal Housing Administration (FHA) and Veterans Affairs (V.A.) primary home purchases.
Borrowers must qualify for the full monthly payment before the lower rate is applied, UWM said Wednesday.
In June, UWM rolled out ‘Game On’ pricing, which cut prices of all loans between 50 to 100 bps points and forces competitors to lower their prices and make smaller profits or lose money on the loans. The initiative is expected to continue for several more quarters, though it’s unclear when the wholesaler will end the program.
“We’re watching it as it goes,” Mat Ishbia, UWM’s chairman and CEO, told analysts during the company’s second-quarter earnings presentation on Aug. 9.
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