What is a 2/1 rate buydown?

A 2/1 rate buydown is a type of mortgage financing option where the interest rate on the loan is initially reduced for the first two years, and then increases in the third year and remains fixed for the remainder of the loan term.

In a typical 2/1 rate buydown scenario, the borrower will pay additional upfront fees or points to the lender in order to secure a lower interest rate for the initial two-year period. This lower rate makes the monthly mortgage payments more affordable during those first two years.

After the initial two-year period, the interest rate will increase to a predetermined level and remain fixed for the rest of the loan term. The purpose of this type of buydown is to provide the borrower with some initial financial relief by offering lower payments in the early years of the loan.

It's important to note that the specific terms and conditions of a 2/1 rate buydown can vary depending on the lender and the individual loan agreement. It's advisable to consult with a mortgage professional to fully understand the details and implications of a 2/1 rate buydown before considering it as an option.