A 3-2-1 buydown mortgage is a type of home mortgage that offers a way for borrowers to reduce their monthly payments for a set period of time. It’s an attractive mortgage option for those who don’t have a significant amount of money to put down on a home. In a 3-2-1 buydown mortgage, the lender pays for an upfront buydown fee in exchange for the borrower agreeing to a reduced interest rate for a set period of time. The buydown fee is usually equal to three points, two points, or one point of the loan amount. The points can be paid by the borrower or the seller.
How Does a 3-2-1 Buydown Mortgage Work?
The 3-2-1 buydown mortgage is structured in three stages. In the first stage, the borrower pays a lower interest rate than the regular interest rate for the loan. This lower rate is paid for a period of three years. In the second stage, the interest rate increases slightly, but is still lower than the regular rate. This rate is paid for a period of two years. In the third stage, the interest rate increases to the regular rate, which is the rate the borrower pays for the remainder of the loan term.
Benefits of a 3-2-1 Buydown Mortgage
The main benefit of a 3-2-1 buydown mortgage is that it offers borrowers the opportunity to reduce their monthly payments for a set period of time. In addition, the 3-2-1 buydown mortgage can be a great option for those who don’t have a large down payment to put down on a home. It can also be an attractive option for those who may have difficulty qualifying for a conventional loan.
Drawbacks of a 3-2-1 Buydown Mortgage
One of the drawbacks of a 3-2-1 buydown mortgage is that it can be expensive. The upfront buydown fee, which is usually equal to three points, two points, or one point of the loan amount, can be a significant expense. In addition, if the borrower refinances or sells the home before the three-year period has ended, they may not be able to recoup the cost of the buydown fee.
Who Should Consider a 3-2-1 Buydown Mortgage?
A 3-2-1 buydown mortgage may be a good option for those who don’t have a large down payment to put down on a home. It can also be a good option for those who may have difficulty qualifying for a conventional loan. In addition, it can be a good option for those who want to reduce their monthly payments for a set period of time.
Where Can I Find a 3-2-1 Buydown Mortgage?
A 3-2-1 buydown mortgage is typically offered by mortgage lenders and banks. It’s important to shop around and compare rates and terms from different lenders to get the best deal. In addition, it may be beneficial to speak with a mortgage broker who can help you find the best loan for your situation.
The Bottom Line
A 3-2-1 buydown mortgage can be a great option for those who don’t have a large down payment to put down on a home. It can also be a good option for those who may have difficulty qualifying for a conventional loan. It’s important to shop around and compare rates and terms from different lenders to get the best deal. In addition, it may be beneficial to speak with a mortgage broker who can help you find the best loan for your situation.
