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Get a 2-1 Buydown Loan

A 2-1 buydown loan is a type of mortgage loan that allows borrowers to make lower monthly payments during the first two years of the loan. With a 2-1 buydown loan, the interest rate is reduced by 2% in the first year and 1% in the second year, after which the interest rate returns to the original rate for the remainder of the loan term.

What is a 2-1 Buydown Loan?

A 2-1 buydown loan is a type of mortgage loan that allows borrowers to make lower monthly payments during the first two years of the loan. With a 2-1 buydown loan, the interest rate is reduced by 2% in the first year and 1% in the second year, after which the interest rate returns to the original rate for the remainder of the loan term.


The purpose of a 2-1 buydown loan is to make it easier for borrowers to qualify for a larger loan or a more expensive home by reducing the monthly payments during the first two years. This can be beneficial for borrowers who expect their income to increase over time or who need to conserve cash during the early years of the loan.


However, there are potential drawbacks to a 2-1 buydown loan. By reducing the interest rate in the first two years, borrowers are essentially prepaying interest on the loan, which means that they will have less equity in the home during that time. Additionally, the interest rate will increase after the first two years, which means that the monthly payments will increase as well.


Before applying for a 2-1 buydown loan, it's important to carefully consider the potential benefits and drawbacks of this type of loan. Borrowers should also be prepared to meet the credit and income requirements set by the lender, and should carefully read and understand the terms of the loan before signing on the dotted line.

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FAQs

Got a question? We’re here to help.

  • How does a 2-1 buydown loan work?

    With a 2-1 buydown loan, the borrower pays an additional fee at closing to lower the interest rate during the first two years of the loan. The interest rate is reduced by 2% in the first year and 1% in the second year, after which it returns to the original rate for the remainder of the loan term. This results in lower monthly payments during the first two years of the loan.

  • What are the benefits of a 2-1 buydown loan?

    The main benefit of a 2-1 buydown loan is that it allows borrowers to make lower monthly payments during the first two years of the loan. This can be beneficial for borrowers who need to conserve cash during the early years of the loan or who expect their income to increase over time.

  • What are the drawbacks of a 2-1 buydown loan?

    By reducing the interest rate in the first two years, borrowers are essentially prepaying interest on the loan, which means that they will have less equity in the home during that time. Additionally, the interest rate will increase after the first two years, which means that the monthly payments will increase as well.

  • Who is eligible for a 2-1 buydown loan?

    Eligibility requirements for a 2-1 buydown loan will vary depending on the lender and the borrower's financial situation. Generally, borrowers must have a good credit score and a steady source of income to qualify for this type of loan.

  • How do I choose the right 2-1 buydown loan?

    When choosing a 2-1 buydown loan, it's important to compare interest rates, fees, and terms from multiple lenders to find the best option for your financial situation. You should also have a clear understanding of the terms of the loan, including the repayment schedule and any penalties for late payments or prepayment.

  • Can I refinance a 2-1 buydown loan?

    Yes, a 2-1 buydown loan can be refinanced, although certain eligibility requirements must be met. Refinancing can help borrowers lower their monthly mortgage payments or shorten the term of their loan.

  • How long does a 2-1 buydown loan last?

    The reduced interest rate on a 2-1 buydown loan lasts for the first two years of the loan. After that, the interest rate returns to the original rate for the remainder of the loan term.