Yes, we live in the 321 Area code, but it has nothing to do with this helpful loan product. A 3-2-1 buydown provides a temporary reduction in your mortgage interest rate over the course of three years: 3 percentage points lower in the first year, 2 percentage points lower in the second year, and 1 percentage point lower in the third year. Following this period, your mortgage rate will revert to its original level.
This type of arrangement is particularly advantageous in the current interest rate environment. Imagine securing a mortgage with an annual percentage rate (APR) of 7%. Opting for a 3-2-1 buydown mortgage would translate to a 4% rate in the initial year, 5% in the second year, and 6% in the third year, ultimately settling at the agreed-upon 7% rate for the remainder of your loan.
Here is the Kicker!
The rule is, the buydown can’t be paid for by the buyer! A 3-2-1 buydown can be paid for by the seller, homebuilder, or even the mortgage lender. This is a popular concession among sellers who are eager to sell for one reason or another. It often allows them to achieve the full asking price on their home, while also incentivizing buyers to invest in real estate.
How Much Does It Cost?
The cost for each discount point depends entirely on the amount you, as the borrower, take out on the loan. Discuss this option with your trusted mortgage lender for a better idea of how much your buydown would cost. If you need recommendations for great local lenders, let me know!
The 3-2-1 buydown program was conceived to provide home buyers some financial flexibility, especially when faced with the threat of higher interest rates that could jeopardize their homeownership dreams. A mere 3-percentage-point reduction in your mortgage rate can wield a considerable influence on your monthly payment.