News and Tips

Useful Home Sales Tool: 2-1 Buydown

21 Apr , 2011  

Have a tired listing? Maybe a 2-1 Buydown will attract new prospective buyers.


Sellers maintain the home’s price and offer a strong competitive advantage.
Qualified Buyers receive a lower interest rate in the first few years of home ownership, giving them an initial lower payment with no surprises
In some cases, buyers can qualify at the lower bought-down rate – a great feature for buyers who anticipate rising income in the first years of the loan.
A wide variety of fixed rate and fixed period Arm loan programs allow Buydowns.

Assume the note rate is 4.875%. In year 1, the note rate is lowered by 2% to 2.875%. The second year the rate increases by 1% to 3.875%. The third year the rate increases to the final note rate of 4.875% where it stays for the remainder of the loan.

Year Note Rate / P&I Buydown Rate / P&I Monthly Savings Annual Savings

1 4.875% / 1,587 2.875% / $1245 $342 $4,104

2 4.875% / 1,587 3.875% / 1411 176 2,112

3 4.875% / 1,587 4.875% / 1587 0 0 ___

Total Cost to Seller (savings for buyer): $6,216

*The 2/1 Temporary Buydown above is based on a 30 year fixed rate, $300,000 loan amount. The cost of the temporary buydown to the seller/builder is the amount of actual savings to the buyer/borrower.

The Buydown allows for a reduced interest rate for a specific period (one or two years) with periodic annual increases until the payment reaches the fully amortized rate. The borrower is locked in at the fully amortized rate.

How to use this tool: The Seller offers to pay for the Buydown for a qualified buyer in all marketing material. This is just like the seller paid costs many contracts include, except the money pays for the buydown of rate and not towards the cost of appraisal, attorney and title work. For some buyers, this may be just enough to get them come see the property, the first step to falling in love with it.

The 2-1 buydown could be what helps you sell that home.

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