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A 2-1 buydown is a type of temporary buydown that you can sometimes access in the mortgage market. Here are the basics of a 2-1 buydown.
Buydown
The idea behind a buydown is that you can pay your mortgage lender a certain amount of money up front when you close your loan, and it will lower the interest rate of your mortgage. Sometimes, this will be a permanent buydown, and other times, it will be only a temporary one.
2-1 Buydown
With a 2-1 buydown, you are going to give your mortgage lender a specific amount of money when you close your loan. At this point, you are going to get 2 percent off of your loan for the first year of the loan. This is going to significantly lower your mortgage payment for 12 months. The next year of the loan, you are going to get 1 percent off of your mortgage rate. This results in a slightly larger mortgage payment than what you had for the first year. After the second year, your interest rate is going to go back to the original rate that was quoted to you for the loan. It will remain at that rate for the rest of the loan.
