A 2-1 Buydown allows a person to literally buy their interest rate down for 2 years. In year one you buy the interest rate down 2 points, in year two you buy the rate down 1 point and in the third year and beyond it is at the regular interest rate you qualified for. You pay the buydown fees when you purchase the property and obtain your loan.
It is most often used by buyers who are receiving a credit from the seller which they credit toward the buydown cost. Often times, when negotiating on a buyers behalf, we find that a interest rate buydown can be more financially beneficial then reducing the purchase price.
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