Ralph DiSciullo

The Local Expert


Beacon Mortgage

160 E Plant St.

Winter Garden





Q: Interest rates are getting scary. How do I keep that interest rate down?

A: The real estate market is making a definite shift toward a buyer’s market and away from a seller’s market. How far it will swing is anyone’s guess, but inventories of homes are certainly going up. Unfortunately for homebuyers, interest rates are doing the exact same thing. Which brings us to our question: How do you keep the interest rate down?

We may have an answer—it’s called a 2-1 Buydown. With a 2-1 Buydown loan, interest rates are lowered by 2% for the first year. They’re lowered by 1% the second year. And on the third year, they resume the original rate.

Let’s plug in some numbers and give you a better idea of how it works:
Say you’re buying a $450,000 house with a 20% down payment for a mortgage loan of $360,000 at an interest rate of 7% and APR of 7.094%. Your monthly principal and interest (P&I) payment would be about $2,395.05.

But, with a 2-1 Buydown, your interest rate would decrease from 7% to 5% for the first year. With the new interest rate, your monthly P&I payment would be $1,932.56.

The following year, your interest rate would be lowered to one percentage point less than the original rate, from 7% to 6%. The monthly P&I amount you’d be paying would be $2,158.38.

Your payment would then return to the original 7% interest rate from the third year onward.

Bear in mind that this scenario doesn’t factor in taxes and insurance, so your actual monthly payment would vary. But you can see the differences between years 1 and 2 versus year 3 and after.
Important note: a 2-1 Buydown is a temporary loan. Unlike the ARM loan nightmares of the past, you are protected. You still get to lock in your mortgage at a fixed interest rate.

Is a 2-1 Buydown right for you? Could you live with today’s rates after two years if your present circumstances don’t improve? Maybe. One thing is for certain; it will definitely shine a glimmer of hope for some homebuyers on the volatility of today’s market.

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