How to Lower Your Interest Rate Using 2-1 Buydown If You Are a First Time Home Buyer

Design by Diana Walton- Houston First Time Home Buyer Specialist

Good afternoon, I do hope you're having a great Wednesday. Buying a home during rising mortgage rate can be a bit tricky. One way to navigate the rising rates is with a 2-1 or a 3-2-1 buydown mortgage. With a 2-1 buydown mortgage, your interest rate for the first year will be lower, before going a little higher in the second year, and finally reaching its full rate amount by the third year.

In this example the home buyer obtains a loan plus 7% interest rate, with the 2-1 buydown, the interest rate is reduced by 2% for the first year and 1% in the second year. Essentially the home buyer would only pay 5% interest rate for the first year and 6% the second year. Once the buydown period ends, the lender would then charge the home buyer the full interest rate for the remainder of the mortgage.

This means the home buyer will pay 7% for the reminder of the 27 years of a 30 year mortgage. What does it cost? Buydown rate cost may differs among lenders, however, one point is typically one percent of the loan amount. For example, 2 discount points on a $400,000 mortgage loan would be $8,000.

But wait, let’s say interest rates drop to 4% during the buydown period, the home buyers can refinance their mortgage to get the better rate with the same lender or with a different lender. Buying a home in this market may be a bit challenging but you do have options. We hope you enjoyed your visit with us today.

As always, thank you so much for stopping by. Remember, if you are thinking of purchasing your first home, please contact us. We are here to help. We have been helping Houston first time home buyers since 2011 and we can help you. I hope you have an amazing day. Until next time...Diana

We hope you enjoyed your visit with us today.

Image by Diana