Thanks to inflation run wild, interest rates have escalated sharply over the several months. This has decreased competition in the once hyper-competitive market, but it has also decreased affordability for buyers. One solution to lower monthly payments and get into a home more affordably could be a 2-1 buydown.
What is a 2-1 Buydown?
A 2-1 buydown is a type of financing offered by sellers to incentivize buyers that will temporarily reduce a buyer’s interest rates. The rate is reduced by 2% the first year and 1% the second year. By the third year of the mortgage term, the interest rate goes back to the original interest rate on the loan.
How does this increase buying power?
The reduced monthly payments available through a 2-1 buydown can help mitigate initial housing expenses and help buyers get into a home at a more affordable cost. Additionally, because there is reduced competition when rates are higher, buyers may be able to get a home at a lower purchase price than they would otherwise be able to.
What happens year three?
By the third year of the mortgage term, the rate goes back to the original interest rate on the loan. If rates have gone down by the third year, a buyer may opt to refinance at that time. If rates don’t go down and continue to go up, then at least buyers have locked in at lower rate.
If the current interest rates are a factor in delaying your move, a lender can help you determine if a 2-1 buydown may be a good solution for you. Curious and looking for an A+ lender to walk you through your options? Reach out and I’ll send info for a rockstar lending partner your way!