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The Power of an Interest Rate Buy Down: Setting Your Property Apart

erin • Oct 05, 2022

375 Coulee in Bozeman, MT is now offering a $5,000 credit to its future buyer to help buy down the Buyer's interest rate!


Why is this already well priced property offering this incentive?


Changing interest rates are impacting Buyers buying power, and these Seller's want to help you make this property your new HōM(e)!

The Power of an Interest Rate Buy Down: Setting Your Property Apart


As interest rates increase to correct market inflation, Sellers and Buyers are looking to their REALTORS® for creative solutions to help keep their real estate sales and new property purchases moving forward. 


Life changes and shifting markets don’t prevent homeowners from accepting new jobs, changing communities, or embarking on new adventures! Fluidity to facilitate these changes in the real estate market is cultivated through agent advocacy for our clients and solution finding by your REALTOR®! 


Interest rate buy downs are a compelling negotiation tool for both Sellers and Buyers and  should be a consideration in every negotiation today. 


With 100-point rate index increases happening frequently, buying power for Buyers with financing is ever changing. A Buyer qualified in April of 2022 to purchase a property with an asking price up to $900,000 when interest rates were in the 4% range, may now be facing a $600,000 maximum qualification due to the increasing interest rates current 7% on a 30 year fixed mortgage for a well-qualified Buyer. This significant buying power change has happened quickly, and Sellers and their agents should assess the position of their listing in the market weekly to ensure the current asking price reflects the Buyer’s rapidly changing buying power.

As most Sellers aren’t likely to have the freedom (or desire) to readjust the asking price of their home by 30% to match their potential Buyers' redefined buying power, it is important to explore the other solutions available in our market to help bring Buyers back to the negotiation with a contract price that will entice a Seller with a monthly payment that a Buyer can tolerate.


Why would a Seller consider spending their perceived profit to buy down a Buyer’s interest rate?

To cultivate a contract! 


Buying down the Buyer’s interest rate is a fairly inexpensive way to bring the Buyer to your negotiation table with a purchase price that aligns with your asking price. Interest rates have increased 3% (between April and September of 2022) causing a 30% reduction in buying power for a financed Buyer, a small closing concession to buy down the Buyers interest rate has the inverted effect of the rising interest rates to the contract price and can notably increase the Buyer’s purchasing opportunity.


Check out the power of an interest rate buy down, courtesy of Brynn at Cherry Creek Mortgage, for a $595,000 sale like 375 Coulee in Bozeman, instead of a $5,000 price reduction for the financed Buyer:


Price Reduction vs. Rate Buy down

3-2-1 Rate Buy Downs vs. Current Market

$595,000 at 7% Interest

The Seller offers the home for $595,000, and the Buyer is purchasing the property with 5% down and today’s interest rate of 7%. In this situation, the principal and interest payment would be $3,760.62..


This is not an insignificant payment for most Bozeman Buyers, 



$595,000 at 7% Interest Graph

$595,000 at 4%

The Seller offers the home for $595,000, and helps the Buyer Buy Down the interest rate to 4% for the first year, their year one payment signficantly drops to $2,698.59; saving your Buyer $1,062.03 a month in payment or $12,744.36 in the first year in payment expenses!

$595,000 at 4% Graph

2-1 Buy Down

A 3-2-1 buy down is another competitive, and more expensive up-front, opportunity to reduce the Buyer's monthly payment and bring the $595,000 purchase back into a monthly payment bracket that is comfortable and readily accessible for your Buyer. 



3-2-1 Buy Down

Remember: First Impressions Matter!

Staging your Home to Sell

All pricing strategies aside, a home must show well to bring a Seller top dollar in any market. For a home to sell quickly, it must be easy to show and show well. 


Ensuring your property shows well will be critical to your bottom line and time on the market.


Focus on the Buyers initial impression of your property! Explore your property like a potential Buyer and imagine you are viewing a property you’d like to buy. 

  • Does the curb appeal impress you? 
  • Does your front door invite a Buyer in?  
  • Does your house show well? 
  • Does your house smell great? 

To show well, properties must be: 

  • Easy to show
  • Vacant for showings, allowing Buyers to speak freely in the property
  • Fully able to view, with all doors unlocked and rooms open for Buyers to visit 
  • Depersonalized allowing Buyers to imagine their own touches in the property
  • Sparkling clean, allowing Buyers to focus on the great features 
  • Light and bright, with all lamps and overhead lights on, and blinds open


Successfully preparing and staging your home will significantly impact your offer price. Attention to detail is the key to closing at top dollar! 






A Tax and Financing Note:

Points (or the money spent to purchase down the interest rate) are deductible in the year the property is purchased for the Buyer.


Speak to your CPA, as taxation is not my expertise. Speak to Brynn at Cherry Creek Mortgage for individual estimates for you regarding the power of an interest rate buy down.  I am introducing concepts and ideas here for you to talk with your financial experts about to help you devise the best plan for you.

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