Question

Tim and Sue have obtained a buydown loan on their newly built home. Which of the following statements is not true?a. They will have to make a large down payment.b. Their interest rate will rise after the first few years.c. The builder paid a lump sum amount at closing to reduce the interest rate for a few years.d. The lender assumes Tim and Sue’s income will rise over the first few years of the loan.

Answer 1

a. They will have to make a large down payment.

Step-by-step explanation:

Buy-down loan is a kind of loan where money is initially paid upfront, in order to reduce the interest amount and have small installments.

Therefore, in the given case when Tim and Sue obtained a buy-down loan they have to pay a big upfront amount, which can also be termed as large down payment.

Also interest rate does not affect, as it is constant.

As the lump sum amount is paid in beginning no lump sum amount is paid at the end of loan period.

There is no assumption for income on such loans, aiming to increase the income.

Final Answer

a. They will have to make a large down payment.