In the past two years, many homebuyers took advantage of rate buydowns a strategy that lowered their mortgage interest rate temporarily in exchange for an upfront cost. These buydowns were promoted widely with the expectation that mortgage rates would decline in the near future, allowing homeowners to refinance into a lower fixed rate.
But that’s not how things have played out.
Rate Buydowns Were Meant to Be a Bridge
Homebuyers who opted for a rate buydown were essentially paying extra money at closing to secure a lower interest rate, typically for the first one to three years of their loan. The logic was sound at the time: the Federal Reserve was expected to bring rates down, and refinancing would be easy and affordable.
However, while the Fed has lowered short-term rates, long-term mortgage rates have stayed stubbornly high. As a result, many of these buydowns are now approaching their expiration dates without the lower refinancing option that homeowners were banking on.
Rising Payments Could Strain Borrowers
As these temporary buydown periods come to an end, mortgage payments for many homeowners are about to rise—sometimes significantly. This situation is drawing comparisons to the adjustable-rate mortgage (ARM) resets that contributed to the 2008 housing crisis, when interest rates adjusted sharply upward and many borrowers could no longer afford their loans.
The big question now is whether today’s market could see a similar wave of delinquencies or even a broader housing downturn.
Why This Isn’t 2008 – At Least Not Yet
There is one key difference: underwriting standards are much stricter now than they were in the mid-2000s. The loans issued during the pandemic-era housing boom were primarily made to well-qualified borrowers who went through rigorous documentation and vetting. That’s a major departure from the “no-doc” or “low-doc” loans that flooded the market before the last crash.
Still, that doesn’t mean we’re in the clear. If these borrowers start missing payments once their buydowns expire and their monthly costs rise, we could see an uptick in mortgage delinquencies. It’s a trend that bears watching closely, particularly for investors, property managers, and anyone with exposure to the housing market.