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Definition
Also Known As
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.
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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 Research 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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