What is a 3-2-1 buydown mortgage?

A 3-2-1 buydown mortgage typically offers a reduced interest rate for the first year, followed by slightly higher rates for the second and third years, before leveling off at the fully indexed interest rate for the remaining term of the loan. For example, let’s say the fully indexed interest rate on a 30-year fixed-rate mortgage is 4%.

What is a buydown mortgage?

A buydown is a mortgage-financing technique that allows a homebuyer to obtain a lower interest rate for at least the first few years of the loan, or possibly its entire life. It is similar to the practice of buying discount points on a mortgage in return for a lower interest rate, except that it is temporary.

What is a 2-1 buydown?

A 2-1 buydown is one that features a rate that’s 2% lower the first year of the loan and 1% lower in the second year before settling at the permanent rate in the third year of the term. Rocket Mortgage understands it’s tough challenge out there for buyers right now. Rates have gone up and prices haven’t necessarily come down to make up for it.