1% Buydown Loans
What Is a 1% Buydown Loan?
A 1% buydown loan is a type of temporary interest rate buydown where the borrower (or sometimes the seller or builder) pays an upfront fee to reduce the mortgage interest rate by 1% for the first year of the loan. This can make monthly mortgage payments more affordable during the initial year of homeownership.
After the first year, the interest rate automatically increases to the full note rate and remains fixed for the rest of the loan term, assuming it's a fixed-rate mortgage.
This type of buydown can be useful for borrowers expecting an increase in income or who want to ease into their mortgage payments. However, it's important to understand the full financial picture — including the upfront cost of the buydown, how it affects the total interest paid over time, and how it compares to other loan options.
This type of buydown can be beneficial for borrowers who anticipate an increase in income or those seeking to gradually adjust their mortgage payments. However, it's essential to understand the complete financial picture — including the upfront cost of the buydown, its impact on the total interest paid over time, and how it compares to other loan options.n options.tions.tions.s.ptions.ns.ptions.s.