With interest rates increasing over the last couple of years, sometimes buying the rate down can be a great strategy. A buydown is a way for a lessee to obtain a lower interest rate and payments by having points paid up front at closing. Seller-paid buydowns are the most common type of lease buydown.
To structure a lease interest rate buydown, you will need to:
Here is an example of a lease interest rate buydown structure:
In this example, the seller would pay $2,368 upfront to reduce the interest rate by 1%. This would reduce the lessee's monthly lease payment to $1,933.60.
TValue software is an excellent program to structure a buydown and do the “what if” calculations to determine the best deal for both parties. With TValue, you can structure the payment at the buydown rate and then change the rate to the market rate and solve for the buydown amount.
In TValue, this is a two-step process. First, we want to solve for the Payment with the buydown rate, e.g., 6%. Then we change the rate to the financed rate and we insert the second Lease Event for the buydown and put “U” for Unknown and then Calculate. The negative Lease Amount is the effective buydown amount.
Here are some tips for structuring a lease interest rate buydown:
If you have any questions using TValue software, please give our Support Team a call at 800-426-4741 or email us at support@TimeValue.com.