More home sellers are paying to lower your mortgage rate — and the math can beat a price cut

Getting a home sold today takes creativity.

Facing a shrinking pool of prospective buyers and some of the highest mortgage rates in three years , motivated sellers are slashing prices and trying new tactics to help lower buyers' financial burdens, like issuing credits to fund mortgage rate buydowns or covering closing costs.

The shift comes as rising mortgage rates and falling home sales give buyers more negotiating power. Mortgage applications have plummeted since late August, and homes are taking longer to sell, contributing to a build-up in available inventory.

Last month, home sellers gave concessions to buyers in more than 45% of all sales, according to Redfin data, the highest share for the month of September since at least 2020. And 22% of sellers dropped prices in the four weeks through Oct. 11.

"I think everyone is just having to get a little bit more creative with the listings and buyers to help make deals work," said Jessica Smith, a real estate agent and founder of the Key Group in Austin, Texas.

Buyers have had the upper hand in Austin for several years, and nearly two-thirds of homes sold there in recent months included some sort of buyer concession, according to Redfin.

Seller concessions cover a broad range of perks for buyers, from prepaying homeowners' association dues to providing cash credits to fund repairs.

But among the most popular concessions today, with mortgage rates hovering at a three-year high of 7.4% , are seller-paid rate buydowns, real estate agents and lenders told Yahoo Finance. In this scenario, a seller agrees to give a buyer a credit toward purchasing discount points, a type of upfront fee that lowers a mortgage rate.

Buydowns can bring a rate down by a set amount for the life of a loan or be structured as a "2/1" buydown, which lowers a mortgage rate by two percentage points for the first year of the loan, then by one percentage point in the second year before reverting to the original agreed-upon rate in year three.

In today's high-rate world, both types can save a buyer far more each month than lowering a home's purchase price by an equivalent amount.

A buyer who put 20% down on a $400,000 home and received $10,000 from their seller to use toward a mortgage rate buydown could permanently reduce their rate to 6.75% and save about $135 a month for the life of their mortgage. A 2/1 buydown would save $418 a month during the first year.

A $10,000 price cut to the home, though, would translate to savings of just $70 a month.