Is a 2-1 buydown worth it? Pros and cons explained
A 2-1 buydown, also known as a 2-year temporary buydown, provides breathing room for aspiring homeowners to get started on building equity. Learn how it works and dive into the pros and cons to find out if it’s the right move for your home financing strategy.
What are buydowns?
Buydowns are plans designed to help you ease into your full mortgage payment within a period of time. You can expect lower initial payments, thanks to a temporarily reduced interest rate. Because of this, buydowns can make homeownership more accessible and leave buyers with more money left over for updates and repairs.
Guild Mortgage offers a few different temporary buydown options.
- 1-year buydown (1-0): A popular option, the rate is bought down for the first year.
- 2-year buydown (1-1 or 2-1): A 1-1 buydown offers a 1% reduction for two years, while a 2-1 buydown starts at a 2% reduction, then drops to 1% for the second year.
- 3-year buydown (3-2-1): The rate is bought down gradually for the first three years.
Guild also offers the Payment Advantage program, a 1-0 lender temporary buydown on us*. This can also be paired with our Payment Protection program where borrowers can come back to refinance with zero lender fees if rates drop in the future**.
What is a 2-1 buydown?
A 2-1 buydown is a financing option where the interest rate is reduced by 2% in year one and 1% in year two before returning to the locked in note rate in year three and beyond. A useful strategy in a high-rate market, 2-1 buydowns can significantly lower your mortgage payments during the first two years of your loan.
| Year 1 | Rate reduced by 2% |
| Year 2 | Rate reduced by 1% |
| Year 3 | Rate returns to locked in note rate |
Who pays for it?
Buydowns are often funded by the seller, builder or lender as an incentive—but buyers can also pay for it themselves through prepaid interest. Our temporary buydown calculator will give you an idea of how much you could save.
Pros of a 2-1 buydown
- Lower initial payments: Homeownership becomes more affordable during the first two years.
- Flexibility: It’s a useful tool if your income is expected to increase.
- Builder incentive tool: Many builders offer these to sell new construction.
Cons of a 2-1 buydown
- Temporary relief: Since it’s not permanent, your payments will increase after two years.
- Upfront costs: Whether you’re paying for it directly or your lender is, someone is covering the prepaid interest—and this may result in greater fees in other areas to make up for it.
- Risk of overstretching: If the buyer’s income doesn’t change, they may get used to the lower payments and struggle when rates normalize in a few years.
When is a 2-1 buydown a good idea?
Even if you meet the credit score requirements, lenders also look at whether:
- You expect to refinance within two years.
- You expect your income to rise soon.
- The seller or builder is covering the cost.
Conclusion
Temporary buydowns can be a smart strategy in the right circumstances, especially if you plan on having more income in a couple of years or want to refinance in the near future. Homeownership comes with many financial benefits and buydowns help people get moving to achieve these benefits and build wealth more quickly. 2-1 buydowns in particular are helpful in reducing your mortgage payments the first two years of your loan, leaving you with extra budget for renovations or a higher-priced home. Reach out to an experienced loan officer near you to calculate the long-term savings and ensure they fit your financial timeline.
*The Payment Advantage and Payment Advantage Plus programs are a promotional offer from 11/10/2022 to 12/31/2025. The Payment Advantage program is a promotional primary purchase offer on a Conventional 1-year lender-paid temporary buydown. The Payment Advantage Plus program requires seller participation to provide a seller incentive to temporarily reduce the rate by 2% for the first year. The lender promotional offer will temporarily reduce the rate by 1% for either the first or second year of the conventional mortgage on conforming and high balance loan limits. The lender and seller-paid credit will fund the buydown escrow account, and the funds will be dispersed out of the buydown escrow account during the first 12 or 24 months of the loan.
**For Payment Protection program full terms and conditions, visit www.guildmortgage.com/homebuyer-protection.
The above information is for educational purposes only.
Borrower must meet program eligibility and qualify based on the note rate of the program selected. All information, loan programs & interest rates are subject to change without notice. All loans subject to underwriter approval. Terms and conditions apply.