2-1 Buy Down Mortgage
Description
Fixed loan rate in which the buyer pays 2 percentage points below the rate the first year and 1 percentage point below the second year, then the market rate the rest of the term. The difference is paid by the home builder or seller.
Pros
Low initial interest rate, yet none of the risk of an adjustable rate mortgage. Borrower has a couple of years at a lower rate.
Cons
The borrower may qualify at the low initial rate but be unable to afford the subsequent rate adjustments. The amount paid by the builder probably will be reflected in a higher purchase price or discount points.
