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Interest Rate Buydowns |
Interest Rate Buydowns
The most common buydown is the 2-1 buydown. In the past, for a buyer to secure a 2-1 buydown they would pay additional points (1 point = 1% of the loan amount) in order to pay a below market interest rate during the first two years of the loan. At the end of the two years they would then pay the interest rate shown on their note for the remaining term.
As an example, if the current interest rate for a conforming fixed rate loan is 8.5%, the buydown gives the borrower a first year rate of 6.50%, a second year rate of 7.50% and a third through 30th year rate of 8.50%.