How does a 2-1 buydown work?
By AbeAugust 12, 2026Purchase Loans
Short Answer
A 2-1 buydown temporarily reduces the borrower's effective payment for the first two years. The payment is generally calculated 2 percentage points below the note rate in year one, 1 point below in year two, and at the full note rate from year three forward.
Full Detailed Answer
The mortgage itself typically has a fixed note rate. Money contributed at closing is placed in a buydown account and used to cover the difference between the reduced payment and the full scheduled payment during the first two years.
The buydown is often funded by a seller, builder, or lender credit, subject to the loan program's contribution limits. Borrowers are generally qualified using the permanent note-rate payment, because that is the payment due after the temporary subsidy ends.
A 2-1 buydown can create early payment relief, but it should not depend on a future refinance. Rates may not fall, property values may change, and refinancing requires a new approval and closing costs. Compare the buydown with using the same credit toward closing costs or a permanent rate reduction.
What Abe Will Review
- Who funds the buydown
- Full note-rate payment
- Cost versus other uses of the seller credit
- Treatment of unused funds if the loan pays off early
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