2/1 Buydown

A 2/1 Buydown is a way to lower the effective rate while also locking in your downside. And with the market shifting slightly out of an intense sellers’ market, buyers and sellers could negotiate a win-win.
So how does it work? A Buydown is a seller-funded, mortgage financing technique where money is paid up-front to decrease the interest rate used to calculate the borrower’s monthly mortgage obligation. The funds are collected at closing and placed into an escrow account. The escrowed funds are then used to cover the difference between the reduced payment rate and the fully indexed note rate of the Borrower’s mortgage payment for the first 1-2 years.
For a seller, a 2/1 Buydown offer will cost less than a price reduction and could attract buyer interest in a market.        For a buyer, this lower payment is super attractive as it allows them to adjust to a higher priced home and gives them flexibil-ity in their budget for other homeownership expenses. It also gives them a lower rate while they might be experiencing uncer-tainty at work given the economic slowdown. The win for buyers over an ARM loan is that they get an even lower rate than an ARM for 1 to 2 years while hoping for a refinance opportunity during a recession. On the other side, if rates do not drop and/or a recession is averted, the 2/1 Buydown is a 30-year fixed, market-rate loan. There is no risk of their rate going up ever.

* Specific loan program availability and requirements may vary. Please get in touch with your mortgage advisor for more information.