Jaspreet Singh Issues Warning to All Homebuyers — Here’s What To Watch Out For
Written by
Adam Palasciano
Edited by
Nicholas Morine
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In a recent video, financial guru, attorney, and entrepreneur Jaspreet Singh said he’s “sending a warning to all homebuyers and potential homebuyers because I’m starting to see some realtors and lenders do some not-so-good things, and I want you to be aware of it.”
The warning relates to 2-1 mortgage buydown loans. “A 2-1 buydown is a way for the seller to go and pay down some of the mortgage for the short term, that way the buyer can more easily afford the monthly payments for the short term,” Singh detailed.
Is this a good idea, or not?
What Is a 2-1 Buydown Loan?
Investopedia explained that a 2-1 buydown loan is an agreement that provides for a low-interest rate for the first year of the loan, a somewhat higher rate for the second year, and then the full rate for the third and later years.
What are some mortgage lenders and realtors doing, according to Singh? They’re trying to convince buyers that a 2-1 mortgage buydown loan option is the best for them, on the assumption that mortgage rates will certainly drop within the next 1 to 2 years. Then, buyers can refinance their mortgages at a lower rate than before.
In Singh’s example of what he ostensibly overheard during a conversation between a realtor or mortgage lender at the gym, with the 2-1 buydown loan option, the prospective buyer will only pay a 5.5% interest rate for the first year, a 6.5% interest rate for the second year, and by the third year, they’ll be paying 7.5%. This is instead of a mortgage that starts out with a 7.5% interest rate right away. The idea is that the buyer can “ease” into the monthly payments for the first few years of the mortgage. Some sellers who are motivated to sell their homes are willing to offer a similar financial incentive in order for buyers to take over their mortgages.
Unfortunately, many mortgage brokers and lenders do not have the best interest of their clients at heart, but rather they’re after more money instead.
“This is where your financial education is so important. Because if you just trust a banker or a realtor to look out for your financial situation, it’s like asking an insurance salesman how much insurance you should buy. The answer will always be more,” said Singh.
Is a 2-1 Mortgage Buydown Loan a Good Idea?
The question is: is this the right option for buyers? Singh said no. Here’s why:
- Mortgage rates may remain high and not decrease for the next several years, leaving buyers stuck with a high-interest mortgage that they really can’t afford.
- The Federal Reserve may keep interest rates high, or even raise them again, according to The Observer.
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