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Professional Standards Manual

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Trading Services

4. General Information

(a) Contract Clauses - View Entire Section

(XVII) Financing Information - View Subsection
(10) Buy-Down of New First Mortgage

Where the seller is buying down a new first mortgage arranged by the buyer, it is recommended that the buy down clause follow the subject to first mortgage clause.

NOTE: This technique is used in periods of high interest rates when the buyer wants a more attractive mortgage rate. The seller is willing to accept a reduction by paying a sum to the mortgagee/broker to accomplish this end. The mortgagee receives a better ‘‘yield’’ on the mortgage. The net result to the buyer is less interest to pay over the term of the mortgage.

Seller To Pay Discount To Buy-Down Rate for Buyer Clause

Subject to a (select either first or second) mortgage being made available to the Buyer on or before (date) , in the amount of $ (amount) at an interest rate not to exceed %per annum, calculated (select either half-yearly or monthly)not in advance, with a ___-year amortization period, ___year term, and repayable in blended payments of approximately $ (payment) per month, including principal and interest (plus 1/12 of the annual taxes, if required by the mortgagee).

The Seller will pay a discount to the (select either mortgagee or broker) on the  (select either first or second) mortgage arranged by the Buyer, sufficient to yield the mortgagee an interest rate of ___ %** per annum, calculated (select either half-yearly or monthly)not in advance, for a term of  ___ years, but the amount of discount and buy-down costs may not exceed $(amount) in total and will be deducted from the proceeds of sale due to the Seller on completion.

This condition is for the sole benefit of the Buyer.

 

* This is the ‘‘bought-down’’ rate (i.e., what the Buyer wants).

** This is the ‘‘market ’ rate (i.e., what the Lender wants).

Ω If the seller has not sought legal advice before signing the offer, a subject clause similar to the one here should be added allowing him or her to obtain such advice.