What is a 3-2-1 mortgage buydown?

A 3-2-1 mortgage buydown is a way for home buyers to reduce their interest rate in the first three years of their mortgage. In exchange for an up-front fee (paid in cash), a lender will lower the interest rate on your mortgage by 3% in the first year, 2% in the second year, and 1% in the third year—that’s where the 3-2-1 part comes from.

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 mortgage?

By contrast, with a 2-1 buydown, the rate is reduced by 2% for the first year, 1% for the second year, and then rises to the original rate when the buydown period ends. A 3-2-1 buydown mortgage can be an attractive option for homebuyers when mortgage rates are high enough to discourage a home purchase.