A 3-2-1 or 2-1 buydown is a type of mortgage financing option that allows homebuyers to temporarily lower their interest rate for the first two or three years of their loan. This can make monthly mortgage payments more affordable, especially in the early years of the loan when the borrower is paying mostly interest.
With a 3-2-1 buydown, the borrower’s interest rate is reduced by 3% in the first year, 2% in the second year, and 1% in the third year. After the third year, the interest rate returns to the original rate that was agreed upon when the loan was first originated.
With a 2-1 buydown, the borrower’s interest rate is reduced by 2% in the first year and 1% in the second year. After the second year, the interest rate returns to the original rate.
There are several benefits to 3-2-1 and 2-1 buydowns for buyers, including:
There are also several benefits to 3-2-1 and 2-1 buydowns for sellers, including:
To get a 3-2-1 or 2-1 buydown, borrowers will need to pay a fee to the lender. The fee is typically equal to the amount of interest that will be saved during the buydown period.
For example, if a borrower is getting a 3-2-1 buydown on a $200,000 loan with a 5% interest rate, they will need to pay a fee of $6,000. This is because the borrower will save $6,000 in interest over the first three years of the loan.
Whether or not a 3-2-1 or 2-1 buydown is right for you will depend on your individual financial situation and goals. If you are looking for a way to lower your monthly mortgage payments and make homeownership more affordable, then a buydown may be a good option for you.
However, it is important to keep in mind that you will need to pay a fee for the buydown. Additionally, your monthly mortgage payments will increase after the buydown period ends.
If you are considering a 3-2-1 or 2-1 buydown, it is important to talk to a mortgage lender to learn more about the different options available to you and to see if a buydown is right for you.