2-1 Buydown Mortgage Loan

A couple of years ago, first time home buyers were able to purchase a new home with some great adjustable rate programs but rates have gone up on these type of loans and now they are searching for more stable loan programs which keep their monthly mortgage payment low. The 2-1 buydown 30 year fixed mortgage loan allows you to buy down your rate for the first couple of years which means you can afford a bigger home with a low payment. Let's take a look at an example. Let's say you want to purchase a $258,000 home with 3% down which would give you a $250,000 loan and we will use the current rate of 6.25% (6.29% APR) then your payment on traditional 30 year fixed program will be $1,539 principal and interest. But if you take the buydown loan program at 4.75% (4.87% APR) then your first year payment will be $1,304 which is $235 less than the traditonal 30 year fixed loan. The reason why the program is called 2-1 because your rate will adjust 1% per year for 2 years and then it will remain fixed for the remaining 28 years so your interest rate will be 5.75% in year 2 and finally it goes to 6.75% in the beginning of year 3 and remains fixed thereafter for the life of the loan. Now, there a couple of points worth mentioning here. You may say, I will have a 6.75% rate for years 3-30 which is higher than 6.25% rate which is true but it will take 6 years on the buydown program to equal the rate on the traditional loan (4.75%+5.75%+6.75%+6.75%+6.75%+6.75% divided by 6 years equals 6.25%) and most people usually refinance or move by that time since the average first time home buyer will live in their first home 5 years or less. Also, you can buy down the rate further by paying more points up front to get the rates lower (1 point is 1% of the loan amount). For example, you can do a 4.50%-5.50%-6.50% program with 2 points. Please visit 2-1 Buydown Mortgage for more details.

The icing on the cake for this program is the fact that the inventory of homes are higher now and sellers as well as builders are willing to pay for your buydown points as well as closing costs to make a deal right now. The mistake most first time home buyers make is they get the seller or builder to reduce their sales price let's say $5,000 which only lowers your monthly payment $30 per month based on 6.25% traditional loan rate. What you may want to do is don't ask for the price reduction and request that the seller or builder pay points and closing costs which would give you a much lower payment and less out of pocket costs. Another point worth mentioning is the fact if you do end up moving within 2 years, your average rate on the buydown loan will be 5.25% (5.42% APR) which is much lower than the current market rate. Also, you will save approximately $3,800 in interest and your remaining mortage balance will be lower because you will pay more toward your principal at a lower rate. Bottomline, if you are looking for a more conservative program which doesnt' have as much risk as an adjustable mortgage then the buydown program may work for you. Finally, if you know your income will be increasing over the next couple years but you want to keep your initial payments low then this loan is an ideal choice. I know this program may seem somewhat complicated but you need to contact an experienced mortgage professional to go over this program in great detail so you understand how it works and will it benefit you based on your specific financial goals and situation. Personally, I offer my clients an analysis report which spells out everything about the buydown loan. I believe you must give home buyers the best loan options available so they can make an intelligent decision about the biggest purchase they will make in their life.