A 2-1 Buydown is a mortgage lending technique that provides for a lower mortgage payment during the first two years of the loan term. In the first year, the principal and interest payment will be based on 2% below the note rate. The principal and interest payment will be based on 1% below the note rate in the second year. For the remainder of the term, the payment will be based on the note rate (the actual interest rate on the loan).

What’s great about this program is that homebuyers can purchase a new home at a more affordable payment giving them two years to make lower mortgage payments and ease into the full payment based on the note rate amount. So essentially, homebuyers will get two years of lower payments.

The buydown program can be used for owner-occupied homes and second homes for purchases and rate and term refinance. However, borrowers cannot get cash out by using this program.

In an environment where mortgage rates are rising, the 2-1 buydown benefits homebuyers by helping them afford a larger mortgage and a more expensive home. It is especially appealing to first-time homebuyers who may be having trouble purchasing a home in the current market. In general, the 2/1 buydown will be great for anyone with limited income for a short time but who anticipates their income to increase significantly by year three of the loan.

Authored by Rick Metzgar, owner, and founder of Rock Spring Financial Group, LLC.

Rock Spring is a full-service mortgage lending firm dedicated to providing superior customer service, and excellent rates with a custom-tailored approach. 

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