Temporary 2-1 Rate Buydowns: Lower Payments Now, Without an ARM
- Chris Heidt
- Aug 12
- 2 min read
When rates feel high, a temporary 2-1 buydown can make the first two years of homeownership more comfortable—without changing the fixed note rate of your loan.
What is a 2-1 buydown?
It’s a credit (often from the seller, builder, or lender) that pre-funds part of your first two years of payments on a fixed-rate mortgage.
Year 1: your payment is calculated at note rate – 2%
Year 2: your payment is calculated at note rate – 1%
Year 3–30: you pay the full note-rate payment
You qualify for the loan at the full note-rate payment, not the reduced one
Interest always accrues at the note rate; the credit simply covers the early-year difference
How the payment relief looks (simple example)
Assumes a $400,000 loan amount on a 30-year fixed (P&I only). This is illustrative, not a rate quote.
Year | Rate Used for Payment | Monthly P&I |
1 | Note − 2.00% (e.g., if note is 7.000%, payment uses 5.000%) - APR 6.92% | $2,147.29 |
2 | Note − 1.00% (e.g., 6.000%) | $2,398.20 |
3–30 | Full note rate (e.g., 7.000%) | $2,661.21 |
That’s about $513.92/mo saved in Year 1 and $263.01/mo in Year 2 (≈ $9,323 total pre-funded by the credit). Payments shown exclude taxes, insurance, mortgage insurance, and HOA.
Buyer benefits
Smoother first-two-years cash flow while income stabilizes or rates potentially improve
Not an ARM: the note rate is fixed; only the payment is temporarily reduced
If you sell or refinance early, unused buydown funds typically reduce your payoff (servicer policies vary)
Seller spotlight: Buydown vs. Price Cut
Sellers often ask: “Why not just lower the price?” A credit to fund a 2-1 buydown typically gives buyers far more near-term monthly relief than the same dollars in a price reduction—while helping protect list price and comps.
Roughly $9.3k funds the 2-1 example above
A $9.3k price cut only lowers a buyer’s payment by about $62/mo (at a 7% note rate)
It would take roughly 12.6 years of that $62/month to equal the two-year benefit of the buydown credit
Programs at a glance
Conventional, FHA, VA: widely available for fixed-rate loans (subject to investor overlays)
Jumbo: many investors allow 2-1 buydowns; rules vary
Funding sources: seller, builder, or lender credit; Interested-Party Contribution caps apply
Borrowers are qualified at the full payment
Is a 2-1 buydown right for you?
If you want lower payments in the first two years—and you (or your seller) can apply a credit toward the buydown—it’s worth a look. I’ll run the numbers for your exact price point and program.
Questions or a custom quote?
Chris A. Heidt — Highland Mortgage
(239) 470-6310 • chris.heidt@highlandmtg.com
Disclosures: For illustration only; not a commitment to lend or an offer of credit. Payments shown are principal & interest only and exclude taxes/insurance/MI/HOA. Eligibility, pricing, and terms subject to change and credit approval. Program availability and seller/builder/lender credit limits vary by investor, occupancy, and LTV. Unused buydown funds on early payoff typically reduce payoff—servicer policies vary. Contact us for your personalized quote and APR information.
