How to Combat High Mortage Rates


What is a 2-1 Temporary Buydown Loan? 

A 2-1 buydown is a program in which the buyer, seller, and/or builder pays to reduce the buyer’s mortgage rate temporarily. 

The interest rate is reduced for the first two years of the loan. The lowered rate helps buyers to ease into their mortgage by reducing their monthly payments temporarily. 

The borrower is still required to qualify at the full note rate, despite paying for only a portion of the rate for the first two years. 

How Does a 2-1 Buydown Work? 

The borrower’s interest rate will be reduced by 2% during the first year and by 1% during the second year. The mortgage carries the full standard rate and payment in years 3-30. 

Buydown funds are automatically applied to reduce the monthly payment of principal and interest during the reduced two-year period. Each month’s Buydown Funds have been prepaid by the buyer, seller, or builder, effectively bringing down the payment as if the rate were reduced for the first 24 months of the loan. The rate on the mortgage does not actually change. 

Requirements for a 2-1 Buydown Loan

The borrower must qualify at the full note rate despite paying a discounted rate for the first two years. 

2-1 buydown loans only apply to 30-year fixed rate mortgages. Credit, income, and further qualifications still apply and will vary by lender. 

Buydown funds cannot be used to reduce the mortgage amount for determining the loan-to-value (LTV) ratio. 

Temporary Buydown Loans vs. ARM Loans

Adjustable rate mortgages (ARMs) can be a great tool to reduce a borrower’s rate and payment amount. While starting rates are lower than conventional loans, ARM loans interest rates may increase every six months after the initial period.

A 2-1 buydown offers more predictability. It’s a fixed-rate loan, meaning you’ll know what your payment will be during the first year, second year, and years 3-30. 

Closing Thoughts

Some additional funds can go a long way toward making a home more affordable, especially when a new homebuyer may need it most. 

2-1 buydowns can be a great option for a variety of scenarios, including: 

  • Those whose income will increase in the next two years
  • Those who want a lower initial payment without an adjustable-rate loan
  • Those who have a spouse returning to the workforce in the next 1-2 years
  • New homebuyers looking for a lower payment in their first years of homeownership 

If this is something of interest to you or someone you know please call me!  I’d be happy to introduce you or them to a few of my wonderful preferred mortgage professionals who could discuss this and other options further.


Orlando Real Estate Market

November 6, 2022 – November 12, 2022

Single-family existing homes

  • Sales of single-family homes decreased to 203 during the week of Nov 06, from 362 the week prior
  • The median price of single family homes decreased to $415,000, a change of -3.5%
  • Single-family inventory decreased by 30, and now sits at 5,388

Sales of condos, townhomes, and villas 

  • Sales of condos, townhomes, and villas decreased to 73 during the week of Nov 06, from 132 the week prior
  • The median price of condos, townhomes, and villas increased to $250,000, a change of 3.1%
  • Condo inventory decreased by 18, and now sits at 1,648


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