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Definition
A mortgage rate buydown is when you pay money upfront at closing to reduce your interest rate, either for the life of the loan or for the first few years. A permanent buydown uses discount points to cut the rate for the entire term. A temporary buydown, such as a 2-1 buydown, lowers your rate 2% in year one and 1% in year two before it reverts to the full note rate in year three. Buydowns are often funded by a seller or builder concession rather than out of your own pocket, which can make a home more affordable in the early years. The right choice depends on how long you plan to stay in the home, current rates, and who is paying for the buydown.
Also Known As
Discount Points
2-1 Buydown
Temporary Rate Buydown
Permanent Buydown
Used in Context
- The builder offered a 2-1 buydown that cut our rate 2% in the first year and 1% in the second before it reverted to the note rate.
- Rather than negotiate a lower price, the seller funded a temporary buydown concession to ease our first two years of payments.
- A loan officer matched through Dreamy Leads explained how permanent discount points compared to a temporary buydown for our situation.
What's the difference between a permanent and temporary buydown?
A permanent buydown uses discount points to lower your rate for the entire loan term. A temporary buydown, like a 2-1 buydown, only reduces the rate for the first year or two before it reverts to the full note rate. Permanent buydowns cost more upfront but last.
How does a 2-1 buydown work?
A 2-1 buydown cuts your interest rate by 2% in the first year and 1% in the second year, then reverts to the full note rate in year three and beyond. It lowers your early payments, and it's often funded by a seller or builder concession.
Who pays for a mortgage rate buydown?
You can pay for a buydown yourself at closing, but it's often funded by a seller or builder concession instead. Who pays varies by deal and market conditions, so it's worth negotiating who covers the upfront cost when you shop for a home.
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