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Mortgage Basics

What is a 2-1 Buydown?

June 21, 2019

You’ve probably heard of “buydowns” or “temporary buydowns” before, but you may not know exactly what that means. That’s where we come in.

A 2-1 buydown is a mortgage loan option in which the seller or builder reduces the homebuyer’s interest rate for the first two years of the loan. In year one, the interest rate is 2% less than the original, locked-in rate. In year two, the interest rate is 1% less.

Here’s an example. If you’ve locked in a 4.500% interest rate, Waterstone Mortgage’s 2-1 Buydown Program would allow you to make monthly payments at a 2.500% interest rate for the entire first year of your mortgage. Then, in year two, your payments would be based on a 3.500% interest rate”. Finally, once you hit year three and for the remaining life of your loan, your payments would reflect your originally-agreed-upon 4.500% interest rate.

We also have the ability to do a 1-0 buydown, which reduces your interest rate by 1% the first year of your mortgage, returning to the original rate the second year. A 2-1 buydown is the most common, but we have options for whichever suits your needs.

How Does a Buydown Work?

The seller or builder covers the difference between what your payment typically would be and the adjusted, bought-down rate.

If you are in the process of purchasing a home, you can ask your Realtor to negotiate a buydown with the seller or builder, if you’re purchasing a new construction. If you need some help getting started, contact a Waterstone Mortgage loan professional today – we can walk you through the process.

Who Can Benefit from a Temporary Buydown?

An temporary buydown can benefit all parties involved.

Obviously, homebuyers benefit as they’re able to ease into their mortgage a little more gradually. There may be additional costs associated with buying a house besides the monthly mortgage payment, like a down payment, closing costs, furniture, paint, mortgage insurance, etc. – everyone’s situation is different, but it’s always nice to be able to offset those extra expenses with a graduated payment.

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Homebuyers aren’t the only ones who reap the benefits of a buydown! If you’re selling your house, you may end up having a buyer who’s on the fence. Or maybe you want to get your house sold as quickly as possible. Offering a temporary buydown can give homebuyers an extra incentive to purchase your property, without you having to lower the list price.

Interested in purchasing a new home, but like the idea of easing into your mortgage payments? We thought so. Contact a Waterstone Mortgage loan professional today to get started.

Realtors and builders, if you’re interested in facilitating a 2-1 or 1-0 buydown for one or more of your clients, find a Waterstone Mortgage loan originator in your area.