A temporary 2/1 buydown loan reduces the note rate by what percentage in year one?

A temporary 2/1 buydown loan reduces the note rate by what percentage in year one?

• A. 3%
• B. 2%
• C. 1%
• D. 1.5%

Answer: (B)

In a temporary 2/1 buydown loan, the borrower benefits from a lower interest rate during the first two years of the mortgage. Specifically, the structure of a 2/1 buydown allows the interest rate to be reduced by 2% in the first year and by 1% in the second year, after which the note rate returns to its original amount for the remainder of the loan term. In the first year, the interest rate is effectively reduced by 2%. This reduction period is designed to make initial payments more manageable for the borrower, allowing them to ease into their mortgage obligations. Understanding this structure is crucial for mortgage loan officers as it directly impacts the borrower's cash flow during the initial stages of the loan. The answer indicates that the interest rate reduction in year one is 2%, aligning with the fundamental mechanics of the 2/1 buydown loan feature. This is an important concept that borrowers may consider when choosing between different mortgage options, as it can significantly affect both their short-term budget and long-term financial planning.

In a temporary 2/1 buydown loan, the borrower benefits from a lower interest rate during the first two years of the mortgage. Specifically, the structure of a 2/1 buydown allows the interest rate to be reduced by 2% in the first year and by 1% in the second year, after which the note rate returns to its original amount for the remainder of the loan term.

In the first year, the interest rate is effectively reduced by 2%. This reduction period is designed to make initial payments more manageable for the borrower, allowing them to ease into their mortgage obligations. Understanding this structure is crucial for mortgage loan officers as it directly impacts the borrower's cash flow during the initial stages of the loan.

The answer indicates that the interest rate reduction in year one is 2%, aligning with the fundamental mechanics of the 2/1 buydown loan feature. This is an important concept that borrowers may consider when choosing between different mortgage options, as it can significantly affect both their short-term budget and long-term financial planning.