WHAT IS A 2-1 BUYDOWN?

HOW CAN IT HELP?

A 2-1 Mortgage Buydown is a reduction in the interest rate for the first two (2) years of a Fixed Rate Mortgage.

For example:  A 2-1 Buydown offered on a 6.50% loan, would mean that payments are made by the borrower as follows:

                                    1st  12 months         Payments at 4.50% interest

                        2nd 12 months         Payments at 5.50% interest

                        Remaining term        Payments at 6.50% interest

SAVING THE BORROWER THOUSANDS OF DOLLARS IN MORTGAGE PAYMENTS

In this example the Borrower will finance the amount of money the lender is not receiving in interest for the first two (2) years in order to "fund" the buydown.  It is approximately 2 3/4% of the mortgage amount.

For example:  On a $250,000 mortgage the borrower will reduce their payment by approximately $390 per month the 1st year and $177 per month the 2nd year.

The following list is not complete, but it provides some insight into the possibilities made available with buydowns.

• A buydown is a great way for a homeowner to refinance from an Adjustable Rate Mortgage to a Fixed Rate Mortgage.  The 2-1 Buydown will give them a two (2) year transition period with a lower interest rate and with the guarantee of a fixed rate mortgage.
• A 2-1 Buydown makes the payment lower for the first two (2) years.  If the borrowers are expecting an increase in their income, a buydown is a method of making the payments affordable with their current income, and deferring the higher payments until the income has increased.  
• If borrowers need to extend the amount of their mortgage qualification, a buydown may be the answer.  Although closing costs increase (unless the seller is paying the buydown points), the lower initial monthly payment may raise the amount of the mortgage qualification.  The various loan products treat buydowns differently, and some don't allow us to use the buy-down in the qualification ratios.
• In some cases the borrowers may have a relocation plan that pays a specified number of discount points.  Depending on the circumstances of the borrower, it may be more beneficial to apply the discount points to a buydown instead of a lower note rate. 
• Some borrowers use a temporary buydown as a means of accelerating tax benefits.  In order to move tax deductions into the year of closing, discount points are paid for the buyerdown.  The interest deduction (on the discount points) is immediately beneficial.  Although the tax benefits are slightly reduced during the subsequent buydown period, the payments are also lower.  (Check with your tax advisor to see if this would work for you.)

A buydown may make sense for you.  Call me for the best combination of loan programs, fixed or adjustable rate and buydown possibilities.