What Is a Mortgage Buydown and How Does It Work?

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A mortgage buydown, also known as a mortgage rate buydown, involves paying an upfront fee in exchange for a lower mortgage interest rate. The rate reduction can either be temporary or permanent, depending on the buydown type.


 There are several types of buydowns. Here’s an overview of some of the most common mortgage buydown options.

→ 2-1 buydown. A 2-1 buydown agreement provides a lower interest rate for the first two years of your mortgage. Typically, your rate is reduced by 2 percentage points in the first year and 1 percentage point in the second year, which is how this type of buydown gets its name. You’ll pay the full interest rate starting in the third year and for the rest of the loan term.
→ 3-2-1 buydown. With a 3-2-1 rate buydown, you receive a lower interest rate for the first three years of your home loan. Your rate is reduced by 3 percentage points in year one, 2 percentage points in year two and 1 percentage point in year three. For example, let’s say your original interest rate is 6%. In this case, your rate will be 3% in the first year, 4% in the second year and 5% in the third year. Starting in year four, you’ll be charged the full rate (6%) for the remainder of the loan term.
→ Permanent buydown. This type of buydown results in a lower interest rate for your entire loan term versus just the first few years. This option usually involves purchasing mortgage points.

If you have any questions feel free to contact me

 
Bob McCormick, President
Call Toll Free 800 328-0144
Email- McCormickLending@gmail.com


14362 N Frank Lloyd Wright Blvd 1000
Scottsdale, AZ 85260

23 Corporate Plaza Dr. #150
Newport Beach, CA 92660



 mb0903631 nmls175743 nmls179756 Cadoc603J043 Equal Housing Lender

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