2-1 Buydown

AAA

DEFINITION of '2-1 Buydown'

A type of mortgage with a set of two initial temporary-start interest rates that increase in stair-step fashion until a permanent interest rate is reached. The initial interest rate reductions are either paid for by the borrower in order to help them qualify for a mortgage, or might be paid for by a builder as incentive to purchase a home.

INVESTOPEDIA EXPLAINS '2-1 Buydown'

Sometimes the cost of a buydown is calculated and placed in an escrow account where each month a certain amount is paid out equal to the difference in the temporary mortgage payment and what the eventual mortgage payment will be. Other times the cost of the buydown is treated like a traditional mortgage point. A thorough analysis should be conducted by the borrower to ensure that a buydown is economical in either situation.

RELATED TERMS
  1. Buydown

    A mortgage-financing technique with which the buyer attempts ...
  2. Origination Points

    A type of fee borrowers pay to lenders or loan officers in order ...
  3. Discount Points

    A type of prepaid interest mortgage borrowers can purchase that ...
  4. Negative Points

    A cash rebate paid by lenders to a mortgage broker or the borrower ...
  5. Initial Rate Period

    The period of an introductory or "teaser" interest rate on a ...
  6. 3-2-1 Buydown

    A type of mortgage with a series of three initial temporary-start ...
Related Articles
  1. 4 Steps To Attaining A Mortgage
    Credit & Loans

    4 Steps To Attaining A Mortgage

  2. How Interest Rates Affect The Housing ...
    Economics

    How Interest Rates Affect The Housing ...

  3. Understanding Your Mortgage
    Personal Finance

    Understanding Your Mortgage

  4. Make A Risk-Based Mortgage Decision
    Options & Futures

    Make A Risk-Based Mortgage Decision

comments powered by Disqus
Hot Definitions
  1. Correlation

    In the world of finance, a statistical measure of how two securities move in relation to each other. Correlations are used ...
  2. Letter Of Credit

    A letter from a bank guaranteeing that a buyer's payment to a seller will be received on time and for the correct amount. ...
  3. Due Diligence - DD

    1. An investigation or audit of a potential investment. Due diligence serves to confirm all material facts in regards to ...
  4. Certificate Of Deposit - CD

    A savings certificate entitling the bearer to receive interest. A CD bears a maturity date, a specified fixed interest rate ...
  5. Days Sales Of Inventory - DSI

    A financial measure of a company's performance that gives investors an idea of how long it takes a company to turn its inventory ...
  6. Accounts Payable - AP

    An accounting entry that represents an entity's obligation to pay off a short-term debt to its creditors. The accounts payable ...
Trading Center