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2-1 Mortgage Buy Down – How Does It Work?

11-04-2022About Mortgages

In this post, we’re going to explore 2-1 Buydowns and when one might be right for you. Let’s dive right in.

What is a 2-1 Mortgage Buy down?

A 2-1 Buydown is a finance plan that acts as a temporary buydown which allows you to pay a lower interest rate for the first two years before it rises back to the full rate.

Let’s look at an example of a 2-1 Mortgage Buy down.

Let’s say you’re purchasing a home and your loan amount is $400,000 and the interest rate for a 30-year fixed mortgage is 6.5%.

The way this would work for a 2-1 buydown is that for the first year (months 1-12), your effective interest rate would be 4.5% and your payment would be $501/month lower. Then for the second year (months 13-24), it would be 1% lower (at 5.5%) so $257.12 dollars less than it would be. Then years 3-30 then you’ll be paying the original 6.5%.

Now, these savings don’t come out of the blue. The difference in cost for a 2-1 buydown is covered by the seller. In fact, the buyer isn’t allowed to pay the buy down costs. The seller has to contribute the $9,103.76 to the temporary buy down.

How a 2-1 Buy Down works

There are no gimmicks or extra fees with this program. Simply, instead of the seller credit going toward closing costs (as it’s typically is used for) it goes to lower monthly payments for the first two years.

For a 2-1 buydown, essentially, the seller offers credit to the buyer/borrower and that credit is put into an escrow account which is then used to buy down the interest rate for the first two years. So, for the first year the interest rate is 2% lower than the rate of the fixed mortgage, for the second year the interest rate is 1% lower than it should be, and then for the third year it sticks to what it should’ve been all along and it stays there for next 28 years (since this loan is a 30 year loan).

If a buyer/borrower happens to refinance or sell their home before the third year then they’re refunded the amount of any remaining unused seller credit that was originally put into escrow for them from the seller credit.

Who is the 2-1 Mortgage Buy down program for?

The ideal candidates for the 2-1 Buydown loan are borrowers who are very interest rate sensitive for the first two years of the loan. So, if this is you, or if you’re looking to buy a home or refinance in Arizona, contact the Mortgage Brothers Team today! Shoot us an email at or give us a call at (602) 535-2171.