Temporary buydown
Also called: 2-1 buydown, 3-2-1 buydown, seller buydown
A prepaid subsidy that reduces the payment for the first year or two, after which the payment rises to the note rate.
In a 2-1 buydown, the payment is calculated at a rate two points lower in year one and one point lower in year two, then at the note rate thereafter. The subsidy is funded upfront (commonly by a seller or builder) and held in an escrow that releases each month.
Nothing about the note changes. The rate on your loan is the full rate from day one, and underwriting generally qualifies you at that rate, not the discounted one.
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Related terms
- Discount pointsAn optional upfront fee paid to the lender in exchange for a permanently lower interest rate.
- Seller concessionsMoney the seller contributes toward the buyer’s closing costs, capped by the loan program.
- Interest rate (note rate)The percentage charged on your loan balance, the number your principal and interest payment is calculated from.
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