What is a 2-1 Buydown in Mortgage Financing?

A mortgage 2-1 buydown is a type of mortgage financing option that allows a borrower to temporarily lower their monthly mortgage payments. This option can be a great way for borrowers to afford a home in the Boise, Idaho area that might otherwise be out of their price range.

How a 2-1 Buydown Mortgage Works

The way a 2-1 buydown works is that the lender agrees to temporarily lower the interest rate on the mortgage for the first two years of the loan. For example, if the current market interest rate is 4%, the lender may agree to lower the interest rate to 3% for the first two years of the loan. This means that the borrower's monthly mortgage payment will be lower during those two years.

In the third year of the loan, the interest rate will increase back to the original market rate, and the borrower's monthly mortgage payment will also increase. However, by this time, the borrower will have had two years to save money, which will help them to afford the higher monthly payments. Another element of the loan that may change within that time frame is the buyer's equity. It is possible that they have gained enough equity in the home to remove the mortgage insurance which can decrease the payments. Read our blog on Mortgage Insurance to learn more.

The Benefits of a 2-1 Buydown Mortgage

A mortgage 2-1 buydown can be a great option for borrowers who are looking to purchase a home but may not have the funds to afford the monthly payments at the current market interest rate. It can also be a good option for borrowers who expect their income to increase in the future, such as new graduates or those who are in the process of starting a new job.

Evaluating if a 2-1 Buydown is Right for You

It's important to note that not all lenders offer 2-1 buydown mortgages, and the terms and conditions of the loan may vary. Therefore, it's essential for borrowers to shop around and compare different options before choosing a lender. Also, be sure that you feel confident that you are able to pay the higher monthly mortgage payments in a few years when the interest rate goes back up. Discuss with your lender the options you have should your financial situation not become better after the first two years so you can be prepared for the next steps.

To learn more about the other financing options read our blog on How to Choose the Right Mortgage When Buying Your Idaho Home.

If you’re considering this type of loan in Boise, Idaho, meeting with an experienced lender would be beneficial to determine if this is a smart decision for your specific needs. Once you have determined your mortgage situation, contact one of our experienced agents to help you begin shopping for homes in the Boise, Idaho area that are within your budget.