Buy-Down

[Albert Chan]

(10-26-2023 03:48 PM)Albert Chan Wrote:  Note: based on post#8, interest is compounded monthly. Redo calculations.

Without builder's help: n = 30*12, i = 15%/12, pv = 100e3, fv = 0      --> pmt = -1264.44

I might have mis-understood how buy-down work. It might be much simpler.
Buyer pay above annual payment, but the builder helped out for a while.

First 3 years, without builder's help:
n=3*12, i=15%/12, pv=100e3, pmt=-1264.44      --> fv = -99348.53

First 3 years, buyer subsidized rate = 12%
n=3*12, i=12%/12, pv=100e3, fv=-99348.53      --> pmt = -1015.12

Builder fill-in the difference: 1264.44 - 1015.12 = 249.32

Loan rate were not really lowered (bank still get 15%), just seems so.

Simplest is lower loan amount! Why do they make this complicated?
Is it intentional, to get more fees ?