What is a 2-1 Buydown? Complete Definition & Meaning
January 6, 2026What is a 2-1 Buydown? Definition & Meaning
A 2-1 buydown is a temporary mortgage financing arrangement where your interest rate is reduced for the first two years of the loan.
The Simple Definition
2-1 Buydown: Your rate is 2% below the note rate in Year 1, 1% below in Year 2, then returns to the full rate from Year 3 onward.
How a 2-1 Buydown Works
Let's use a real example:
Loan Details: $400,000 at 7% for 30 years
| Year | Interest Rate | Monthly Payment | Monthly Savings |
|---|---|---|---|
| Year 1 | 5.0% | $2,147 | $514 |
| Year 2 | 6.0% | $2,398 | $263 |
| Year 3+ | 7.0% | $2,661 | $0 |
Total 2-Year Savings: $9,324
Who Pays for a 2-1 Buydown?
The buydown cost (~$9,000-12,000) is typically paid by:
- Sellers - As a concession to attract buyers
- Builders - To move new construction inventory
- Lenders - As a promotional incentive
- Buyers - Rarely, but possible
The funds go into an escrow account and subsidize your payments each month.
Why It's Called "2-1"
The name refers to the rate reduction pattern:
- 2 = 2% rate reduction in Year 1
- 1 = 1% rate reduction in Year 2
Other variations include:
- 3-2-1 Buydown: 3% off → 2% off → 1% off → full rate
- 1-0 Buydown: 1% off → full rate
Calculate Your 2-1 Buydown
Ready to see your numbers? Use our 2-1 Buydown Calculator to calculate exact payments and costs.
Need to show a client how a 2-1 buydown works? Create a visual comparison with ShowTheRate.
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