|
Okay, so the 2/1 Buy Down is not a new loan product but it has recently come back into vogue.
Here's how it works:
The client pays points upfront to reduce the interest rate on their loan for the first 2 years of (usually) a 30 year fixed rate loan. So, let's assume the going interest rate on a 30 year fixed rate loan is 7%. The client will pay points at closing to have a rate of 5% for the first year of their loan and a rate of 6% for the second year of their loan. Then, for the remaining term, they'll pay the 7% rate.
This loan option gives the home buyer the best of both worlds...a lower payment in the beginning and the stability of a fixed rate for the duration of the loan.
Sometimes, the cost of the points can even be added to the loan amount, thus reducing out-of-pocket costs to the client.
|
