What are the pros and cons of a 3-2-1 buydown?

Predictable payments: Because the interest rate reduction is predetermined, borrowers can anticipate what their mortgage payments will be during the first three years of the loan. Cons: Upfront costs: Borrowers must pay an upfront fee to the lender in order to participate in a 3-2-1 buydown, which can be a significant expense.

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.

How much does a 3-2-1 buydown cost?

That’s because the fee a lender charges for a 3-2-1 mortgage buydown will be almost the same as the amount of interest you’ll save during the three years it’s in effect. So if a 3-2-1 buydown would save you $10,000 over its three-year lifetime, getting it would cost . . . $10,000 (give or take a few bucks). Who Pays for a 3-2-1 Buydown?