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Guest

Can any body explain me how does a 2/1 buydown actually work? Question

Guest

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

Guest

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%.

Caron · Posted: Fri Sep 30, 2005 11:59 pm Post subject: RE:

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 $120,000 for 25Year @ 6.5% Mortgage With 3-2-1, 2-1 and 1-0 Temporary Buydowns
Year	Monthly Payment Received by the Lender ($)	3-2-1 Buydown		2-1 Buydown		1-0 Buydown
Year	Monthly Payment Received by the Lender ($)	Payment by Borrower ($)	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.

Guest

So the 3-2-1 buydown is "not" a negative ammoritized loan

colin · Posted: Tue Oct 10, 2006 10:23 am Post subject:

Hi Mickie,

Your question has been answered on this page :
http://www.mortgagefit.com/know-how/about5482.html

Thanks
Colin

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How does a 2/1 buydown actually work.