DEFINITION of '3-2-1 Buydown'

A type of mortgage with a series of three initial temporary-start interest rates that increase in a stair-step fashion until a permanent interest rate is reached. Lenders will charge for the temporary interest rate reductions.

A 3-2-1 buydown is sometimes used as a method to help a borrower with excess cash (but a relatively low income) to qualify for a mortgage. Or, a 3-2-1 buydown mortgage might be offered by a builder as incentive to purchase a home.

BREAKING DOWN '3-2-1 Buydown'

Paying for a 3-2-1 buydown is similar to paying points on a mortgage in order to lower the interest rate. However, remember, the interest rate reductions on a 3-2-1 buydown are only temporary. A thorough analysis should be conducted to ensure that the buydown is the best economical choice for your current and future situation.

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