What is a 2/1 Buydown & does it make sense for you?
Have you heard of a 2/1 buydown? Do you know what it does and how it works?
You may not have heard much about buydowns over the last few years. When interest rates are low, many people are content with the rate they negotiate without having to look for ways to lower it further.
But these days, borrowers are actively looking for ways to lower their mortgage payments, and the 2/1 buydown program may be a great way to accomplish that goal.
What Is a 2/1 Buydown?
A 2/1 buydown program is a financing option that offers a lower interest rate for the first two years of your mortgage term.
When you choose this program, your interest rate will be 2% lower in the first year of your mortgage and 1% lower in the second year. As the mortgage term enters its third year, the mortgage rate will increase to the original rate on the loan.
The benefit is that you will have paid lower mortgage payments for the first two years of having the loan, and may make it easier to afford a home.
A 2/1 buydown program is also called a temporary buydown because the initial interest rate is temporary. In this scenario, the interest rate increases yearly until it reaches its permanent interest rate in year three of the mortgage term.
With a Gulf Coast Bank & Trust Home Loans buydown, the seller pays for the buydown.
The payment occurs as a lump sum deposited into escrow. The lump sum deposited into escrow with the loan servicer is used to subsidize the borrower’s lowered monthly payments. Sellers, and some home builders, will sometimes use 2/1 buydown programs as an incentive to attract buyers to their property.
Pros and Cons of a 2/1 Buydown
First, it should be clearly understood that a 2/1 buydown is temporary.
Initially, it can seem like a pro that you are paying a lower interest rate and, therefore, a lower monthly payment for those first two years. However, being ready for the higher payments in that third year is a must.
And remember, you always have the option of refinancing your loan at any time should interest rates go down and you meet qualifying credit criteria.
Find Out if a 2/1 Makes Sense for Your Needs
Buydowns and variable interest rate loans may have many benefits to buyers including a lower mortgage payment. If you are ready to find out if this program makes sense for you: contact one of our mortgage lenders at a branch near you to start the process of getting pre-qualified!
Our lenders will discuss your goals with you, educate you on your options when it comes to a home loan, and help you get pre-qualified for a loan so you know exactly what you might qualify for - whether that’s a 2/1 buydown, fixed-rate conventional loan, FHA loan or any of the other home loan products we offer!