1. What Is A 2-1 Buydown?

A 2-1 buydown is a mortgage financing technique where the borrower pays a lower interest rate in the first two years of the loan. The interest rate is 2% below the note rate in the first year and 1% below the note rate in the second year, before settling at the permanent rate for the remainder of the loan term.

2. How Does The Calculator Work?

The calculator uses the following formula:

Where:

• Base Rate — The permanent interest rate of the mortgage
• Year1 Rate — First year interest rate (Base Rate - 2%)
• Year2 Rate — Second year interest rate (Base Rate - 1%)

Explanation: The calculator computes monthly mortgage payments for each year using standard amortization formulas based on the reduced interest rates.

3. Benefits Of A 2-1 Buydown

Details: A 2-1 buydown can help borrowers qualify for a mortgage by reducing initial payments, provide payment relief in the early years of homeownership, and offer predictable payment increases over time.

4. Using The Calculator

Tips: Enter the base interest rate, loan amount, and select the loan term. The calculator will show your monthly payments for the base rate, first year, and second year.

5. Frequently Asked Questions (FAQ)

Q1: Who pays for the buydown?
A: Typically, the seller pays for the buydown as an incentive, but sometimes buyers can pay for it themselves.

Q2: Is a 2-1 buydown right for me?
A: It can be beneficial if you expect your income to increase over time or want lower payments initially.

Q3: What happens after the second year?
A: After the second year, your interest rate and payment will increase to the permanent base rate for the remainder of the loan.

Q4: Are there any drawbacks to a 2-1 buydown?
A: The main drawback is the higher payments in year 3 and beyond, so you need to be prepared for the payment increase.

Q5: Can I refinance during the buydown period?
A: Yes, you can refinance at any time, but you should consider whether it makes financial sense given the buydown costs.