A 30-year mortgage with a fixed rate, but with a lower initial rate for the first few years.
Example:
If you qualify for a 6% mortgage, a 2-1 Buydown could offer a 4% rate in the first year and a 5% rate in the second year. From the third year onwards, the rate stays fixed at 6%.
Cost:
While there is a cost for the buydown, it can be negotiated in the sales contract, with the possibility of the seller covering the cost.
Why:
The Buydown option allows you to gradually settle into your final mortgage payment. Could open room in your budget for new house items like furniture. Plus, if you refinance during the Buydown period you can get cash back.
Hybrids: Start Lower
What Is It?
A 30-year mortgage with a fixed interest rate lower than that of a traditional fixed-rate loan for an initial period (typically 5 to 7 years).
Example:
After the initial period, the interest rate can fluctuate based on market interest rates.
Cost:
No extra cost upfront
Why:
If you do not see yourself in the home for more than 5-7 years you can enjoy a lower fixed rate during that time
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