What is 2-1 Buydown?
With 2-1 Buydown, you'll get a 30-year fixed rate loan with an interest rate that is discounted 2% during the first year and 1% the second year, with the seller paying points to reduce the rate of the buyer. The difference you would pay for the first year or two of your mortgage would be placed in an escrow account. The escrow account can be covered by the lender, a seller, or a real estate agent in the transaction. By the third year of the mortgage term, the interest rate goes back to the original interest rate on the loan.
For example:
Purchase price: $750,000
Down payment: 20%
Interest rates: 7%
Loan term: 30 years
Monthly Principal and Interest: $3991.81
2-1 Buydown | ||||
Interest Rate |
Original Payment |
Payment Now |
Monthly Saving |
Annual Saving |
5% |
$3991.81 |
$3220.93 |
$770.88 |
$9250.56 |
6% | $3991.81 | $3597.30 | $394.51 | $4734.12 |
2-1 Buydown Cost | $13,984.68 | |||
