A 2-1 buydown is a type of financing that lowers the interest rate on a mortgage for the first two years before it rises to the regular, permanent rate. The rate is typically two percentage points lower during the first year and one percentage point lower in the second year.
Here’s an example. If you’ve locked in a 6.500%, 30 years fixed interest rate, the 2-1 buydown program would allow you to make monthly payments at a 4.500% interest rate for the first year. Then, 5.5% on the second year. Finally, once you hit year three and for the remaining life of your loan, your payments would reflect your originally-agreed-upon 6.500% interest rate.
We also have the option to do a 1-0 buydown, which reduces your interest rate by 1% the first year of your mortgage, returning to the original rate on the second year. A 2-1 buydown is the more popular option. Either way, we have both options for whichever meets your buyers' needs.
Feel free to contact me directly if you want to run pricing scenarios and strategies to find willing sellers to credit your buyer for the cost of the buydown.