Both the rate and payment remain the same for a short fixed period, at the end of which, the rate and payment increase. The rate and payment may increase once, twice, or even three times, depending on whether the buy down is a 1/1, 2/1, or 3/1. The percentage of increase, as well as number of increases is predetermined. Once all of the increases have occurred the new rate and payment remain fixed for the term of the loan.

Lenders will typically charge a fee to "buy the rate down" for the first 1, 2, or 3 years of the loan. The advantage to a Buy down loan is that it offers a lower rate and payment during the first few years of the loan. Buy downs are recommended for those borrowers who are having trouble qualifying from an income stand point.

If a builder offered to provide the buyer funds for a "2-1 Buy down" on a 7.50% loan, would mean that payments are made by the borrower as follows:

• First 12 months: Payments at 5.50% interest
• Second 12 months: Payments at 6.50% interest
• Remaining Term: Payments at 7.50% interest

Perhaps you are interested in having the stability of a fixed payment for the 15, 30, or 40 years. If so, you should consider the fixed rate mortgage option. Otherwise check into our ARM or Balloon options. 

• Find Out About the 8 Deadly Home Buying Mistakes
• Explore other Loan Types
• Learn about Credit Scores
• Determine if you want to be pre-qualified or pre-approved
• Learn about the Tax Advantages of Home Ownership
• Submit a Loan Application