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When interest rates rise, buydown mortgages, often also called “temporary buydowns,” tend to increase in popularity. At The Federal Savings Bank, we help our borrowers understand which program may fit their financial situation better. Buydowns are an excellent option if you anticipate making additional income in the coming years, or if you plan on selling or refinancing your new home. 

What are buydown mortgages? What is a Temporary Buydown? 

Fannie Mae describes buydowns as allowing homeowners “to reduce their effective monthly payment for a limited period of time through a temporary buydown of the interest rate.” At The Federal Savings Bank, all of our buydowns are temporary buydowns. 

Imagine a borrower is eligible for a certain interest rate on the purchase of their new home. The seller might offer to pay a lump sum in buydown funds at the time of closing. This means that for the first couple years, you would be paying less in interest on your mortgage every month. 

What is a 2 1 Buydown? 

If you take advantage of a 2 1 buydown –also referred to as “2-1 buydown”- when you buy your home, you will owe the least amount of interest in the first year, then the interest rate will rise in the second year before settling at the final rate from the third year onward. 

What is a 3 2 1 Buydown? 

Also sometimes called “3-2-1 buydowns”, as with 2 1 buydowns, if you opt for a 3 2 1 interest rate buydown, the interest rate on your mortgage will increase for the first four years.  

What Kind of Buydown Funds Do I Need to Have Upfront? 

“Buydown funds” usually refers to the amount paid to the lender upfront in exchange for a reduced interest rate.  

A loan officer can provide you with a loan estimate for a buydown mortgage at The Federal Savings Bank at no cost when you give us a call at 877-788-2520. They will be able to help you break down exactly what you will be scheduled to pay over the life of the loan. 

The power to buy down your interest rate can help give you the financial breathing room you need, so you don’t need to compromise on your vision for your family’s next home. Contact one of our bankers today and let us help you chart your best course to homeownership.  

Subject to credit approval. Terms and conditions may apply. Property insurance is required for all loans secured by property.

This information is intended for educational purposes only. Products and interest rates subject to change without notice. Loan products are subject to credit approval and include terms and conditions, fees and other costs. Terms and conditions may apply. Property insurance is required on all loans secured by property. VA loan products are subject to VA eligibility requirements. Adjustable Rate Mortgage (ARM) interest rates and monthly payment are subject to adjustment. Upon submission of a full application, a mortgage banker will review and provide you with the terms, conditions, disclosures, and additional details on the interest rates that apply to your individual situation.