As interest rates remain elevated, many homebuyers are seeking innovative ways to reduce their monthly payments—especially during the first few years of homeownership. One increasingly popular option is the 2-1 buydown, a short-term interest rate reduction strategy designed to ease the transition into a new mortgage.

At CPF Mortgage, we’re helping buyers and sellers structure buydown scenarios that are both compliant and cost-effective. Here’s what you need to know.

How a 2-1 Buydown Works

A 2-1 buydown is a type of temporary interest rate reduction on a fixed-rate mortgage. The interest rate is reduced by 2% in the first year and 1% in the second year. Beginning in year three, the rate reverts to the full note rate for the remainder of the loan term.

Example scenario:

• Loan amount: $400,000
• Note rate: 6.5%
• Year 1 rate: 4.5%
• Year 2 rate: 5.5%
• Year 3+: 6.5%

This structure allows buyers to ease into their full mortgage payment while maintaining the long-term stability of a fixed-rate loan.

Who Typically Pays for the Buydown?

The cost of the buydown is most commonly paid by the seller, builder, or occasionally the lender through a negotiated concession. It cannot be paid by the borrower directly if lender-paid compensation is involved, due to regulatory restrictions.

This makes the 2-1 buydown an attractive option for sellers or builders looking to incentivize offers without reducing the sale price of the property.

Who Can Benefit From a 2-1 Buydown?

A temporary buydown may be ideal for:

• First-time buyers who need time to grow into the full payment
• Buyers expecting increased income in the next 12 to 24 months
• Clients planning to refinance within a few years
• Builders and sellers looking for marketable incentives

By lowering the initial monthly costs, buyers gain short-term financial relief while preparing for the full payment over time.

Considerations Before Using a 2-1 Buydown

While this strategy can offer immediate savings, it’s important to evaluate the long-term implications:

• Plan for the full payment: Be prepared for the scheduled increase in monthly payments after the second year.
• Evaluate refinance timing: If you expect to refinance, be realistic about future market conditions.
• Assess funding source: Ensure the buydown is properly disclosed and funded in compliance with loan guidelines.

Our team will walk you through each of these points to ensure your loan structure is sustainable and tailored to your goals.

Is a 2-1 Buydown Right for You?

The 2-1 buydown is a powerful tool in the right situation—but it’s not one-size-fits-all. At CPF Mortgage, we help our clients evaluate every option based on current market conditions, future goals, and overall affordability.

If you’re considering buying a home and want to understand how a temporary rate buydown could work in your favor, we’re ready to guide you through the process.

Contact CPF Mortgage today to learn more.

Disclaimer:
This information is for educational purposes only and does not constitute financial or mortgage advice. All loan programs are subject to qualification and underwriting approval. Interest rates and program terms are subject to change without notice. CPF Mortgage is an Equal Housing Lender. NMLS #222883.