1. What is a 2-1 Buydown?

A 2-1 buydown is a mortgage financing technique where the interest rate is reduced by 2 percentage points in the first year and 1 percentage point in the second year before settling at the permanent rate for the remaining loan term.

2. How Does the Calculator Work?

The calculator uses the 2-1 buydown formula:

Where:

• \( Rate \) — Base interest rate (%)
• \( Year1 \) — First year interest rate
• \( Year2 \) — Second year interest rate

Explanation: The buydown temporarily reduces the mortgage interest rate, making initial payments more affordable.

3. Benefits of a 2-1 Buydown

Details: A 2-1 buydown helps borrowers qualify for mortgages by reducing initial payments, eases the transition into homeownership, and can be paid for by sellers as a closing cost incentive.

4. Using the Calculator

Tips: Enter the base interest rate as a percentage. The calculator will automatically compute the Year 1 and Year 2 buydown rates.

5. Frequently Asked Questions (FAQ)

Q1: Who typically pays for a buydown?
A: Sellers often pay for buydowns as an incentive to buyers, but buyers can also pay for them to secure lower initial payments.

Q2: Is a buydown permanent?
A: No, a 2-1 buydown is temporary, lasting only for the first two years of the mortgage before reverting to the base rate.

Q3: Are there different types of buydowns?
A: Yes, besides 2-1 buydowns, there are also 3-2-1 buydowns and permanent buydowns where the rate is reduced for the entire loan term.

Q4: How does a buydown affect qualification?
A: Lenders may qualify borrowers using the buydown rate rather than the permanent rate, making it easier to qualify for the loan.

Q5: Are buydown points tax deductible?
A: Buydown points may be tax deductible as mortgage interest, but borrowers should consult a tax professional for specific advice.