Interest Rate Buydowns good or bad?

Real Estate

Interest Rate Buydowns

An interest-rate buydown is a tool to help you qualify for a larger loan and purchase a higher-priced house than you could under normal circumstances. A buydown allows you to pay extra (tax-deductible) points up front in return for a lower interest rate for the first few years. Often, people relocating for employment obtain buyd owns because employers sometimes pay the extra points as part of a relocation package.

The most common is the 2-1 buydown, which can cost 3 additional points above current market points. During the first year of the mortgage, the interest rate is reduced by 2 percent and 1 percent the second year. Another option is the 3-2-1 buydown. This reduces the mortgage rate 3 percent the first year, 2 percent the second and 1 percent the third. Thereafter you pay the full rate.