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%.

How does a buydown rate work?

Borrowers can choose buydown plans with rates up to 3% lower than current mortgage rates. For example, if market rates are 5%, a 2-1 buydown would allow you to make payments on an initial rate of 3% for the first year. The rate goes up each year based on the plan you choose. Rates typically rise by 1% per year for the remainder of the buydown plan.

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.