How this number is made
A 3-2-1 buydown makes the rate you pay 3 points lower in year one, 2 points lower in year two, and 1 point lower in year three. The note rate is unchanged. Someone, often a seller, pays the difference up front. This page shows the four payments, not the subsidy cost.
- The note rate is the permanent rate in the loan.
- The term is the full term, because each year’s payment is calculated as if that year’s rate lasted the remaining original term. Servicers differ. This uses the original term for every year, which is the common quote.
Formula
Each year’s payment is the amortizing payment at (note rate − the buydown) over the original term.
Worked example
With the figures already in the form, payment at the note rate, year four on is $2,395.09.
Questions
Is the lower rate permanent?
No. After year three you pay the note rate. Budget for that payment, not for year one.
What is a 2-1 buydown?
The same idea without year one’s extra point. Year one is 2 points off, year two is 1 point off, then the note. You can read that off the year-two and year-three lines and ignore year one.