I was watching some football this weekend and happened upon an ad for “Inflation Buster” from Rocket Mortgage.
I’m always intrigued when I see a mortgage advertisement because it gives me an opportunity to analyze the thing and share it with readers.
Knowing the mortgage industry is so inventive, it’s fun to see what they cook up to combat today’s higher mortgage rates.
The current climate has been very difficult for both prospective home buyers and mortgage lenders, but this is when creativity tends to flourish.
Let’s see what this new program is all about to determine if it’s a good option for you.
What Is Inflation Buster? How Does It Work?
The nation’s top mortgage lender, Rocket Mortgage, launched “Inflation Buster” in mid-September to combat high mortgage rates.
In case you haven’t heard, the 30-year fixed is averaging close to 7% these days, up from around 3% to start the year.
This has clearly wreaked havoc on both home buyers and mortgage lenders. It has made affordability a problem for many and pushed home prices lower.
To offset some of that pain, Rocket Mortgage is providing customers with a little relief during year one of their new mortgage.
In short, the company is offering a buydown mortgage that lowers the interest rate for the first 12 months by 1%.
Each month during the first year of the loan term, the borrower makes a reduced mortgage payment based on that lower interest rate.
Similar to other mortgage buydowns, a special escrow account is setup and funded by the company.
The shortfall is automatically covered via funds in that account to ensure a full payment is made.
The borrower saves the difference each month for 12 months before their mortgage rate (and corresponding payment) returns to the full note rate.
What Are the Potential Savings Here?
They provide an example where a hypothetical borrower with a $400,000 loan amount qualifies for an interest rate of 5.75%.
This would translate to a monthly principal and interest payment of $2,334.29.
To ease some of that payment burden, Rocket would step in and provide a buydown that lowers the interest rate to 4.75% for the first year.
This would reduce the principal and interest payment to $2,086.59 for the first 12 months of the loan term.
And the best part is it is “fully funded” by Rocket Mortgage. That’s a monthly savings of $247.70, or $2,972.40 altogether.
Simply put, it provides some payment relief while the new borrower gets used to homeownership.
Or it could provide extra funds to cover new furnishings, home improvements, and so on.
Rocket notes that this lower payment will be automatically provided to clients who apply for a conventional, FHA, or VA purchase loan.
It is also being extended to mortgage broker clients via the company’s wholesale arm Rocket Pro TPO. In those cases, the funding comes from the real estate agent or home seller.
Is Inflation Buster a Good Deal?
With these types of offers, I always try to determine if it’s a good deal or more of a marketing gimmick.
And often the conclusion depends on the big picture, that is, all the costs involved in the transaction beyond the promotion.
For example, if Rocket Mortgage has the best deal and is providing a discount the first year via the Inflation Buster buydown, why not go with them?
But if another lender you like is providing a superior deal, even without a rate buydown, then well, they’d probably be the better choice.
You may also want to consider alternative loan product, including adjustable-rate mortgages such as the 5/1 ARM or 7/1 ARM.
So you need to consider the whole package and look at the long-term savings of all offers on the table.
With this offer, consider the total savings for the 12-month period and include that when shopping offers side-by-side.
And speaking of offers, it has been proven by real studies that home buyers who shop around and obtain multiple mortgage rate quotes save money.
In other words, only gathering a single mortgage quote could cost you, so put in the time, as unpleasant as it might be.
For the record, other lenders have launched similar buydown programs, including United Wholesale Mortgage (UWM) and CrossCountry Mortgage.
As they become more common, be sure to ask if any of these incentives are offered, regardless of the lender you speak to.