Loan

Rocket Mortgage unveils new 2-1 rate cut for low-income homebuyers

In an effort to boost affordability for those who need it most, Rocket Mortgage has launched a new program called Welcome Home RateBreak.

Similar to their “Break Inflation” product introduced two years ago, it is a reduction in the interest rate paid by the lender.

It allows homebuyers to enjoy a reduced mortgage rate during the first two years of their loan term.

After that, the rate reverts to the interest rate they qualified for for the rest of the term.

Buyers with an Area Median Income (AMI) of 80% or less can take advantage of potential savings.

How Rocket Mortgage Welcome HomeBreak Works

As mentioned, it is a temporary reduction offered by Rocket Mortgage to homebuyers with an area median income (AMI) of 80% or less.

Rocket estimates that about 90 million people nationwide fit this definition. You can search for your local AMI here.

You must also purchase a single-family home (condos obviously don’t qualify) and must meet all other underwriting criteria, such as minimum credit score, maximum debt-to-income ratio, etc.

Rocket cited an example where a homebuyer qualifies for a $250,000 loan at a rate of 6.99% (7.399% APR).

This would typically result in a monthly principal and interest payment of $1,661.

But thanks to the temporary reduction, their mortgage rate in the first year will be 4.99%, reducing their payment to $1,340.

In the second year, the discount rate would be just 1%, or 5.99% in this example, with a monthly payment of $1,497.

Over the remaining 28 years, the mortgage rate will be 6.99%. Rocket says the total savings exceed $5,800, with the money going into an escrow account.

Borrowers will simply make a reduced payment for the first two years, with the difference drawn from an escrow account, which is funded by Rocket Mortgage.

Welcome HomeBreak can also be combined with Rocket Mortgage’s ONE+ program, which allows homebuyers to purchase a property with a 1% down payment.

It is also available through the company’s Rocket Pro TPO channel if working with a mortgage broker.

Is this a good deal?

When I talk about mortgage offers, I always say to look at the big picture, the all-inclusive price including interest rate and lender fees.

So, if Rocket Mortgage is offering a two-year temporary reduction, we also have to consider the alternatives.

Can you get a lower interest rate elsewhere? If so, by how much? Is it possible that another mortgage company could offer a lower interest rate and a discount as well?

What if a different lender was able to offer a 5.50% rate right away, good for a full 30 years?

What are the closing costs? You have to take into account the interest rate and fees involved.

That’s why it’s important to gather some quotes from different sources (including mortgage brokers) to see what other companies are doing. Without that context, it’s impossible to know if it’s a “bargain” or not.

Finally, consider the possibility of refinancing your mortgage in the near future. If mortgage rates fall, as expected, the rate you get today may not be as important.

After all, you may only have that property for a short period of time anyway before trading it in for a lower rate, assuming you qualify to refinance at that time.

Read more: Temporary vs. Permanent Mortgage Buydowns: Which to Choose and Why

Colin Robertson
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