What Is 2-1 Buydown?
A 2-1 buydown temporarily lowers a borrower's interest rate by 2 percentage points in year one and 1 percentage point in year two, before returning to the full note rate for the rest of the loan term.
Example
On a loan with a 7% note rate, a 2-1 buydown means the borrower effectively pays 5% in year one, 6% in year two, and 7% from year three onward.
Why It Matters
Buydowns are often paid for by the seller or builder as a concession, easing a buyer into full payments — but the borrower must be able to afford the full note-rate payment once the buydown period ends.