How 2-1 buydowns can lower your mortgage payments?
A 2-1 buydown is a type of mortgage in which the borrower pays an upfront fee to lower their interest rate for the first two
years of the loan. This option can be especially helpful for those on a tight budget during the first few years of homeownership.
Let’s say you’re buying a $250,000 home and you’ve qualified for a 30-year fixed-rate mortgage with an interest rate of 6.5%. If you choose a 2-1 buydown, you might pay an upfront fee of 3% of the loan amount ($7,500 in this case) to lower your interest rate to 4.5% for the first two years of the loan. This would lower your monthly mortgage payment from $1,580 to $1,266 during the buydown period.
After the buydown period ends, your interest rate would revert to the original rate of 6.5%. At that point, your monthly payment would increase to $1,580 again. Alternatively, you could refinance the loan at the end of the buydown period to lock in a lower rate for the remaining term of the loan.
Here’s another example: let’s say you’re buying a $400,000 home and you’ve qualified for a 30-year fixed-rate mortgage with an interest rate of 6.5%. If you choose a 2-1 buydown, you might pay an upfront fee of 3.5% of the loan amount ($14,000 in this case) to lower your interest rate to 5.5% for the first two years of the loan. This would lower your monthly mortgage payment from $2,528 to $2,123 during the buydown period.
After the buydown period ends, your interest rate would revert to the original rate of 6.5%. At that point, your monthly payment would increase to $2,528 again. Alternatively, you could refinance the loan at the end of the buydown period to lock in a lower rate for the remaining term of the loan.
These examples show how a 2-1 buydown can lower your monthly mortgage payment during the buydown period, which can be helpful if you’re on a tight budget during the first few years of homeownership. It’s important to consider the upfront fee when deciding if a buydown is right for you, as well as your plans for the future and other loan options that may be available to you. Working with an experienced mortgage professional like Tricia Houston of Lending Maven Mortgage can help you make an informed decision based on your individual needs and goals.
