How does a 2-1 buydown actually apply to the payment and interest?

How does a 2-1 buydown work on my payments?

You want to understand how a 2-1 buydown changes your monthly payment and the interest rate you pay. A 2-1 buydown temporarily reduces your interest rate for the first two years of the loan. The rate drops by 2 percentage points in year one, then 1 percentage point in year two, before returning to the original rate for the remaining loan term. Your monthly payment decreases during those first two years because you're paying interest at the lower rates. For example, if your original rate is 6.5%, you'd pay 4.5% interest in year one and 5.5% in year two. The reduced interest gets paid upfront as closing costs—either by you, the seller, or your lender.

Check your Loan Estimate to see the exact payment amounts for each year and who's covering the buydown cost. The closing cost section shows the total buydown fee, while the payment schedule breaks down monthly amounts year by year. You can compare the upfront cost against your monthly savings to see the financial impact. Share your Loan Estimate with your lender and they can walk you through the specific numbers for your situation.