What is a 2-1 buydown?

  • A 2/1 buydown is a financing option that lowers the interest rate on a mortgage for the first two years for the loan term. For the subsequent years, the interest rate rises to a predetermined level, which is the note rate.

  • 2/1 buydowns usually cost about 2.35% of the loan amount.

  • Buydown funds are held aside and are paid out monthly to the investor over the first 2 years. If a borrower refinances or sells the home before the 2 years are up, any unused portion of the buydown funds are then applied to their loan payoff as a principal reduction so that they owe less on the mortgage.

  • The cost of the buydown is determined by calculating the monthly payment difference between the note rate and the temporary buydown rates for each year of the buydown, and then adding up the payment difference for each year for a total buydown cost. 

2-1 buydown calculator

In this table, you can see the interest rates for each year of the 2/1 buydown, along with the corresponding monthly payment, monthly savings compared to the full payment, annual savings, and cumulative savings over the years.

Year Interest Rate Monthly Payment Monthly Savings Annual Savings Cumulative Savings
Year 1 5% $2,147 $514 $6,168 $6,168
Year 2 6% $2,398 $263 $3,156 $9,324
Year 3-30 7% $2,661
$1,234.00 Buydown Cost

$X,000 paid by third-party, $X00 remaining cost balance.

*This calculator is being provided for educational purposes only. The provided values for interest rates are examples only and do not reflect V.I.P. Mortgage, Inc. product terms & offers. The results are estimates and are based on the information you provided and may not reflect V.I.P. Mortgage, Inc. product terms. The information cannot be used by V.I.P. Mortgage, Inc. to determine a customer’s eligibility for a specific product or service. V.I.P. Mortgage, Inc. is not responsible for the content, results, or accuracy of information.

These calculations are hypothetical examples designed for illustration purposes only. Rates and payments are for example purposes only and do not reflect currently available rates. Not an offer to lend. Principal and interest only. Taxes, insurance, and HOA are only estimates based on the information you have provided.  Consult a licensed Loan Officer for more specific information regarding payments, terms, etc.