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What is a Temporary Buydown Mortgage?

First PREMIER Bank


With a temporary buydown mortgage, homebuyers can pay a lower interest rate for the first few years of a home loan in exchange for an up-front payment. This lump sum could be made by a realtor, seller or builder.

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How it Works

With a 3-2-1 buydown loan, the interest rate is reduced by 3% during the first year, 2% during the second year and 1% during the third year. From year four through the end of the term, the buyer pays the full mortgage rate.


To receive the reduced interest the seller, realtor, or builder provides a lumpsum payment to the lender. Buyers may also consider a 2-1 buydown, which works the same way. Interest in the first year is lowered by 2%, followed by 1% in year two.

You must qualify for the mortgage at the initial rate before the buydown.


This is subject to Debt-to-Income and Underwriting requirements. Eligibility is subject to application completion and verification of income, employment, credit, home value, collateral and other lender/loan program requirements.


A temporary buydown can only be used for primary or secondary homes.


Temporary interest rate buydowns are allowed on fixed-rate mortgages and certain Adjustable-Rate Mortgages for principal residences or second homes. The rate reduction cannot exceed 3%, and the rate increase cannot exceed 1% per year. Buydown amount cannot exceed interested party contribution limits.


A temporary buydown loan is different than an Adjustable-Rate Mortgage (ARM).


With a temporary buydown, the approved interest rate does not change over the life of the loan. The seller, lender or developer is simply paying part of the interest for one to three years. With an ARM, the rate and payment can change several times before the loan is paid in full.


Other Things to Consider

  • The cost of the buydown is usually equal to or more than the amount saved in interest
  • There may be restrictions on some government backed loans
  • If the loan is paid off or refinanced before the three years, the unused buydown is credited to the borrower's payoff

Talk to a qualified lender to learn if a temporary buydown mortgage can help you get the house you can't wait to call home!




For informational purposes only.