2/1 Mortgage Rate Buy downs are Back!

The last time mortgage rates broached 7%, many buyer's were able to deploy a strategy to lower their payments in the first two years and get the sellers to pay for it!  It is called a 2/1 Rate Buy Down.

A 2/1 rate buydown strategy is a financial approach used in mortgage lending to help you as a homebuyer manage your initial mortgage payments more easily. It involves temporarily reducing your interest rate and therefore your monthly mortgage payment for the first two years of your loan. After those initial two years, your interest rate and monthly payments will revert to the mortgage rate locked at the time of your initial loan.

Here's how it works:

1. **Initial Period (Year 1 and Year 2):** During the first two years of your mortgage, your interest rate is reduced 2% in the first year and 1% in the second year. This results in lower monthly mortgage payments than you would have if you had a standard fixed-rate mortgage during this period.

2. **Transition Period (Year 3):** In the third year, your interest rate and monthly payment will revert to the prevailing mortgage rate agreed upon when you initially set up the mortgage. 

**Benefits:**

1. **Lower Initial Payments:** The primary benefit of a two-one rate buydown strategy is that it provides you with lower initial monthly payments during the first two years. This can be especially helpful if you're tight on finances initially due to moving costs, home improvements, or other expenses related to your new home.

2. **Easier Budgeting:** The predictable payment structure during the initial years can make it easier for you to budget and manage your finances.

3. **Potential for Refinancing:** One of the significant advantages of this strategy is that the lower initial payments can potentially give you more time to improve your financial situation. After the first two years, when your payments will increase, you might have the option to refinance your mortgage. If your credit score has improved, your income has increased, or interest rates have dropped since you first obtained the mortgage, refinancing could allow you to secure a better rate and potentially even lower your payments to a more manageable level.

4. **Flexibility:** This strategy offers flexibility, as it allows you to take advantage of lower payments at the start while also providing you with the possibility of refinancing later to adjust your payments based on your changing financial circumstances.

5. **Seller Pays for this upfront:** Your agent will negotiate a credit from the seller to pay the full cost of the buy down at close of escrow!

Remember that while a two-one rate buydown can offer several benefits, it's important to carefully consider your financial situation and discuss your options with you mortgage professional. They can help you determine if this strategy aligns with your short-term and long-term financial goals as a first-time homebuyer.