A 2/1 buy-down allows you to temporarily pay a lower interest rate on your mortgage. When you participate in a buy-down, you must make a lump sum payment at closing (which is generally about 2.5% of your loan amount). Thus, a temporary buy-down does not necessarily save you any money because the “savings” is pais up-front. If your interest is locked in at 6% and you participate in a buy-down, your first year mortgage payments will be made at 4%. The second year payments will be made at 5%. Finally, after two years, the rate will get set at 6% and remain consistent for the remainder of the loan. Because the loan is a fixed interest rate loan, amortized over 30 years, the payments will remain consistent over the life of the loan. However, the lump sum you pay at closing will be used to subsidize your payment for the first 24 months. 2/1 buy-down loans are a popular option for people who wish to ease in to their payments. Or, if someone knows their income might increase in the near future (or if a high debt such as a car payment might be deleted within 2 years time), it might make good sense. Debt-to-income ratios can be lowered when you participate in a buy-down which may make it easier to qualify for financing in some instances. As all loan programs go, it is a good idea to talk with your loan officer and discover weather this program is a good option for your situation.

Example

Based on a Sales Price of $130,000