What Is A 2-1 Temporary Buydown?

 A temporary buydown, we've heard of it, but what does it entail? 

In a nutshell, buyers pay an initial lump sum deposit to (as the name suggests) temporarily buy down their interest rate over the course of two years. In the first year, they’ll cut 2% off their noted rate. In the second year, they’ll cut 1%. After that, it’s back to the initial locked rate, but the borrowers will have saved untold dollars between now and then.

Why? This is a GREAT opportunity to help a seller get a property sold without affecting the sales price…..and help a borrower.

Who Pays For It?  It's paid for through Interested Party Contributions (IPC's) i.e. seller concessions. This option is often used as a substitute to reduce the property sales price.

Using The Temporary Buydown Example Blow; Year #1 the interest rate is 5%, 2 points less than the final rate of 7%. Year #2 the interest rate is 6%, 1 point less the final rate year of 7%. Year #3 is at the final rate 7%.