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Rooney
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 Posted: Fri Sep 30, 2005 1:58 pm Post subject: How does a 2/1 buydown actually work. |
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Can any body explain me how does a 2/1 buydown actually work?  |
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Garret
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| Posted: Fri Sep 30, 2005 2:27 pm Post subject: RE: |
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Hello Rooney,
Say you have taken a 30 year fixed loan of $100,000 at an intrest rate of 6.5%. P&I at 6% is $632.07
The first year bought down rate is 2% lower than your 30 year fixed rate. So P&I at 4.5% is $506.69 which is $125,38 lower per month for 12 months, so year one cost is $1504.4
The second year bought down rate is 1% lower than your 30 year fixed rate so your P&I at 5.5% is $567.79 which is $64.28 lower per month for 12 months so year two cost is $771.31
Your total cost of the buydown is $1504.54 + $771.31 = $2251.91
Hope this will help you.
garret |
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Nics
Guest
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| Posted: Fri Sep 30, 2005 10:12 pm Post subject: Re |
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2/1 buydown is one of the most common Temporary buydown.
Buydown is a buydown or prepay interest at the time of closing to receive a lower interest rate.
The prepayment used to pay the interest is often called an originating fee, points or discount points. For every 1% of the loan amount you pay up front, the interest rate will be reduced a 1/4%. |
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 Caron
Moderator
Joined: 19 Jul 2005
Posts: 1562
Location: florida
266.54 Dollars($)
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| Posted: Fri Sep 30, 2005 11:59 pm Post subject: RE: |
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Hi Rooney
Buydown implies a reduction in the interest rate charged on your mortgage. Buydown can be temporary or permanent. With a temporary buydown, the interest rate on your mortgage is reduced at least for the initial years. The most common forms of buydown are 3-2-1 buy down, 2-1 buy down, 1-0 buydown.
If you consider a 2-1 buydown, the interest rate for the first year will be 2% lower than the actual rate, that of the second year will be 1% lower and from the third year you will have to follow the actual rate. That is, on a 8% fixed rate mortgage, the rate for the first year is 6% and that for the second year is 7%. From the third year, you will have to follow the actual rate, that is, 8%.
In order to make up for the reduced payments in the initial period, the lender may ask you to deposit cash in your escrow account at the time of loan application. This amount helps the lender to receive the same payment as in the absence of any buydown.
Monthly Payments by Borrowers and Payments From Escrow Accounts on a $120,000 for 25Year @ 6.5% Mortgage With 3-2-1, 2-1 and 1-0 Temporary Buydowns | |
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| Year | Monthly Payment Received by the Lender ($) | 3-2-1 Buydown | 2-1 Buydown | 1-0 Buydown | | Payment by Borrower ($) | Payment from Escrow ($) | Payment by Borrower ($) | Payment from Escrow ($) | Payment by Borrower ($) | Payment from Escrow ($) | | 1 | 758.49 | 538.86 | 219.63 | 608.03 | 150.46 | 681.35 | 77.14 | | 2 | 758.49 | 608.03 | 150.46 | 681.35 | 77.14 | 758.49 |
0 | | 3 | 758.49 | 681.35 | 77.14 | 758.49 | 0 | 758.49 | 0 | | 4-30 | 758.49 | 758.49 | 0 | 758.49 | 0 | 758.49 | 0 | | Total Escrow | | 5366.76 | | 2731.20 | | 925.68 |
For further information on this topic please visit our section on buydown mortgage.
Please let us know about your feedback. Also sign up with us at http://www.mortgagefit.com/signup/ to get free advice on related issues.
Regards,
Caron. |
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Mickie
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| Posted: Mon Oct 09, 2006 6:41 pm Post subject: 3-2-1 buydown |
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| So the 3-2-1 buydown is "not" a negative ammoritized loan |
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colin
Moderator
Joined: 30 Jun 2006
Posts: 602
Location: Waltham, Massachusetts
112.65 Dollars($)
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