What is Buydown (2-1 Buydown)?
A buydown is an arrangement that temporarily or permanently lowers a loan's interest rate by paying extra money up front, often funded by the seller or builder. In a common 2-1 buydown, the rate is reduced by two percentage points the first year and one point the second year before returning to the full note rate. It can make early payments more affordable while the borrower settles in.
Example: A seller offers a 2-1 buydown so the buyer's 7% loan effectively acts like 5% in year one and 6% in year two, before stepping up to the full rate in year three.