2-1 Buydown

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Definition of '2-1 Buydown'

A 2-1 buydown is a type of mortgage that allows the borrower to lower their monthly payments by paying additional interest up front. This can be helpful for borrowers who are struggling to afford a down payment or who want to reduce their monthly payments.

The 2-1 buydown works by having the lender pay a portion of the interest on the loan for the first two years. This reduces the borrower's monthly payment, but it also increases the amount of interest that they pay over the life of the loan.

For example, let's say that a borrower takes out a $200,000 mortgage with a 30-year term and an interest rate of 5%. If they do a 2-1 buydown, the lender will pay 2% of the interest for the first two years, which will reduce their monthly payment by $100. However, the borrower will still owe the full amount of interest over the life of the loan, so their total interest payments will be higher.

There are a few things to keep in mind when considering a 2-1 buydown. First, it is important to make sure that you can afford the higher monthly payments after the buydown period ends. Second, you should be aware that the buydown will increase the amount of interest you pay over the life of the loan. Finally, you should compare the 2-1 buydown to other mortgage options to make sure that it is the best option for you.

If you are considering a 2-1 buydown, it is important to talk to your lender to get more information and to make sure that it is the right option for you.

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