Here’s what homebuyers need to know about interest rate buydowns.
What is a 2-1 mortgage rate buydown? Also known as an interest rate buydown, this is a financing option that gives a borrower a discounted rate on their mortgage either for the life of the loan or a shorter period.
There are two common types of mortgage rate buydowns. The first is a standard rate buydown, where you pay a fee upfront to lower your rate for the entire length of the loan. The cost depends on the state of the current mortgage market.
"2-1 buydowns have no risk, unlike adjustable-rate mortgages."
The other common type is a 2-1 buydown. With this option, your rate is discounted for the first two years. Then it rises to a regular, permanent rate. Typically, your rate is 2% lower in the first year, 1% lower in the second, and undiscounted for the rest of the loan. The cost of this option also depends on the current mortgage market.
2-1 buydowns have many benefits. They’ll help you qualify for a loan and let you ease into homeownership. Unlike an adjustable-rate mortgage, your rate is fixed after two years, so you don’t have to worry about it increasing beyond what you can afford.
This can be a complicated topic, so reach out if you have any questions. Also, if you have any questions about the market or real estate in general, don’t hesitate to reach out by phone, email, or click this link to submit a contact request. We look forward to hearing from you soon.