What is a 2-1 Buydown?

What is a 2-1 Buydown?

With interest rates and available inventory both on the rise, sellers are looking for creative ways to entice buyers. In an increasingly tough market for both buyers and sellers, one option that can benefit both parties is an interest rate buydown, AKA the "2-1 buydown" program. 

A 2-1 buydown is a mortgage option that helps you get a lower interest rate at the start of your home loan. If a seller is offering concessions (money toward buyer costs), consider using the funds to lower your interest rate. Sellers don't often offer concessions, so take advantage of listings that do!

Here's how it works: for the first year, you get a low interest rate--two percentage points lower than the going rate. In the second year, it moves to one point lower than the regular rate. Then, from the third year onward, you pay the full regular rate. You can also refinance at that point, assuming the market rate is lower than what you initially agreed to. And if interest rates have continued to climb, you're all set with the rate you locked into at the time of purchase!

Suppose a seller is offering a 2-1 buydown on a $985,000 home. If the prevailing interest rate on 30-year mortgages is 7.6%, the buyer would pay 5.6% the first year, and 6.6% the second year. What do the savings look like? 

Assuming a 20% down payment ($197,000), the amount financed is $788,000. In the first year, the buyer pays $4,519/mo. and saves $1,040/mo. In the second year, it's a savings of $531/mo., or $6,377 annually. The third year returns to the normal rate, which the buyer can keep or refinance. That's a total savings of $18,862.75! 

We have a handful of listings offering this program: 

3BR/2BA Barndominium on 12.6ac. in Weatherford, TX
4BR/2BA New Construction Home in Granbury, TX
3BR/4BA New Construction Luxury Home on 2ac. in Weatherford, TX
16,000 sq.ft. Multipurpose Commercial Facility in Granbury, TX

Interested in one of the properties offering a 2-1 buydown? Let's talk! Click the "Contact Us" link in the menu above to leave us a message.

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