United Wholesale Mortgage (UWM) this week expanded its temporary rate buydown offerings amid higher interest rates and fierce competition.
The Pontiac, Michigan-based lender now has an option for borrowers to reduce their rates by 3% during the first year of the loan, compared to the maximum 2% previously offered. UWM is also launching a lender-paid version as an alternative to the sellers-paid product, the company announced on Wednesday.
Borrowers with temporary buydowns pay a lower mortgage rate during the first, second and third years of their loans. After that, the full rate is paid for the remainder of the term.
The temporarily lower rate is made possible by a lump sum that is deposited into a buydown account. Portions of that deposit are then released monthly to compensate for the borrower’s lower payment.
With the seller-paid version, seller concessions, which are closing costs the seller agrees to pay, are deposited as a lump sum into the buydown account. With UWM’s new lender-paid option, “there is a loan level pricing adjustment added to the rate to cover the cost of the buydown for the borrower,” a spokesperson for the company said.
This product expansion comes on the heels of UWM’s mid-August launch of 2-1 and 1-0 buydowns, which are exclusively paid by sellers’ concessions.
How to stay competitive with specialty mortgage products heading into 2023
HousingWire recently spoke with Lee Smith and John Gibson at Flagstar Bank about what originators can do to align their products and services with the ebb and flow of the housing market.
Presented by: Flagstar
Borrowers who take advantage of a 2-1 buydown option and have the market average for a 30-year fixed-rate mortgage, which was 5.22% in August, could use seller concessions to lower the rate to 3.22% in the first year and 4.22% in the second year. The borrower would then pay 5.22% from year three through 30.
The 1-0 buydown, on the other hand, would reduce rates from 5.22% to 4.22% for only the first year. The following year, the loan would roll back to the original rate.
The company’s new 3-2-1 and 1-1 buydowns are now options for borrowers as well.
Mortgage rates were at 6.60% as of Wednesday morning, and a borrower with a 3-2-1 buydown could use lender funds or seller concessions to lower the rate to 3.60% in the first year, 4.60% in the second year and 5.60% in the third year. From there, they would pay 6.60% for years four through 30.
With UWM’s buydown option of 1%, the borrower would pay 5.60% for the first two years. The rate would then go back to the original locked rate in the third year and continue for the duration of the term.
“In a rising-rate environment, a temporary rate buydown is a great option for borrowers who would like a lower rate to save them money on their monthly mortgage payments at the beginning of their loans,” UWM said in a news release.
According to the company, this is an ideal option for borrowers who expect an increase in their income in the next few years or those who have seller concessions to use and want to take advantage of a low rate upfront.
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.
Since September, UWM’s main competitor, Rocket Mortgage, has been reducing homebuyers’ monthly mortgage payments by one full percentage point for the first year of their loan. Dubbed the “Inflation Buster”, the program gives borrowers a reprieve to combat high inflation and affordability challenges, according to the company.
