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Is a 2-1 buydown basically smoke and mirrors?
Key Takeaways
- Buydowns cost money upfront through higher closing costs or loan amounts.
- Lower payments for two years often don't offset the total cost over the loan term.
- Builder-offered buydowns change the math since you don't pay the cost directly.
Is a 2-1 buydown worth the cost?
You're wondering if a 2-1 buydown actually saves money or just moves costs around. A 2-1 buydown reduces your mortgage rate by 2% the first year and 1% the second year, then returns to the original rate for the remaining loan term. The lender typically rolls the cost of this rate reduction into your loan amount or closing costs.
The buydown creates lower monthly payments during the first two years, which can help with cash flow when moving expenses and home setup costs run high. However, you pay for this benefit upfront through a higher loan amount or closing costs. The total interest paid over the loan's life often exceeds what you'd pay with a standard rate.
Check your Loan Estimate to see how much the buydown costs and compare the total payments over different time periods. Calculate whether the monthly savings during years one and two offset the upfront cost, especially if you plan to refinance or move within a few years. Some builders offer buydowns as incentives, which changes the math since you're not paying the cost directly.
Share your specific loan terms with your lender and they can show you side-by-side payment schedules with and without the buydown.
About the Author
Dan Green
20-year Mortgage Expert
Dan Green is a mortgage expert with over 20 years of direct mortgage experience. He has helped millions of homebuyers navigate their mortgages and is regularly cited by the press for his mortgage insights. Dan combines deep industry knowledge with clear, practical guidance to help buyers make informed decisions about their home financing.
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