Temporary 2-1 Rate Buydown Mortgages
With the recent increase in mortgage rates, many homeowners are looking for a way to save money on their mortgage payment.
One option is a Temporary Rate buy Down aka a "2-1 Buydown".
This program allows a seller to provide a credit "concession" to temporarily buy the interest rate down for the first 2 years of the loan by collecting funds upfront to subsidize the monthly payment.
The concession lowers the rate by 2% for the first year and 1% for the second year, then from years 3-30 it’s at the standard fixed rate that was locked in at the time of purchase.
If by the 3rd year rates are higher, then the buyers are ahead of the market. If rates are lower, then the homeowner can explore the possibility of refinancing.
Sellers are occasionally willing to provide a credit for a temporary buydown mortgage to make their home more attractive to buyers, especially to buyers who would find the mortgage payment uncomfortable for the first few years, or who may be expecting an increase in their income.
Based on a $400,000 30-year loan with an interest rate of 6.75%, you would be expected to pay an interest rate of 4.75% the first year, 5.75% the second year and 6.75% from years 3 – 30.
In this example, the seller would need to provide a credit "concession" of $9,214.80 to cover the temporary buydown.
Another option is a Permanent Rate Buydown which you can learn more by clicking the link.
* Specific loan program availability and requirements may vary. Please get in touch with your mortgage advisor for more information.