Understanding a 3-2-1, 2-1, and 1-0 Buydown Mortgage is extremely important in the 2025 housing market with elevated rates and lower affordability.
Understanding 3-2-1 Buydown Mortgage
A 3-2-1 buydown mortgage starts at 3% lower than your note rate in year 1, 2% lower in year 2, and 1% lower in year 3. So, if you get a rate of 6%, your first-year monthly payment will be calculated at 3%, second year at 4%, third year at 3%, and then goes back to your note rate (i.e. 6%) for the rest of the term of the loan.
Let’s look at an example – Say your loan amount is $700,000 at a note rate of 6%. Let’s also assume that the yearly property tax is $7,000 and the homeowner’s insurance is $1000/year. For the 1st year, your monthly payment will be at 3%. See the chart below for the breakdown.
Understanding 2-1 Buydown Mortgage
A 2-1 buydown mortgage starts at 2% lower than your note rate in year 1, and 1% lower in year 2. So, if you get a rate of 6%, your first-year monthly payment will be calculated at 4%, your second year at 5%, and then goes back to your note rate (i.e. 6%) for the rest of the term of the loan.
Let’s look at an example – Say your loan amount is $500,000 at a note rate of 6%. Let’s also assume that the yearly property tax is $7,000 and the homeowner’s insurance is $1000/year. For the 1st year, your monthly payment will be at 4%. See the chart below for the breakdown.
Understanding 1-0 Buydown Mortgage
A 1-0 buydown mortgage starts at 1% lower than your note rate in year 1. So, if you get a rate of 6%, your first-year monthly payment will be calculated at 5%, and then goes back to your note rate (i.e. 6%) for the rest of the term of the loan.
Let’s look at an example – Say your loan amount is $500,000 at a note rate of 6%. Let’s also assume that the yearly property tax is $7,000 and the homeowner’s insurance is $1000/year. For the 1st year, your monthly payment will be at 3%. See the chart below for the breakdown.