A 3-2-1 mortgage buydown can save you up to $18,955 over your first three years of homeownership. This affordability hack lowers your interest rate by 3% in the first year, 2% in the second, and 1% in the third. It offers a massive relief for buyers facing today’s high average mortgage rates.
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How the 3-2-1 Buydown Impacts Monthly Pricing
A 3-2-1 buydown saves a buyer almost $800 a month during the first year on a $465,000 home purchase. This specific example assumes a 10% down payment and a 6.75% base interest rate. Your first year drops the rate to a very affordable 3.75%. As a result, you save $9,314 in year one alone. Over the full three years, you save a total of $18,955 in payments. So, this makes owning a home much more affordable right out of the gate.
Current Mortgage Rates and How the Buydown Works
The 3-2-1 buydown permanently fixes your base rate while temporarily lowering your payments for the first three years. Right now, the national average mortgage rate sits around 7%. We believe rates will likely come down in the next year or two. But of course, we do not have a crystal ball. So, we use this short-term tool to offset today’s higher borrowing costs. After your rate drops in steps for three years, it returns to your locked note rate. Then, it simply remains at that rate until the loan is paid off.
Advice for Spokane Sellers
Sellers fund the 3-2-1 buydown through a closing concession that typically costs about 4.5% of the purchase price. This strategy works incredibly well if you are trying to attract buyers. In our $465,000 example, the buydown cost is exactly $18,955. That is often much cheaper than doing a massive price reduction on your listing. Plus, offering this buydown attracts buyers who are worried about high monthly payments. So, you protect your home’s value while giving buyers exactly what they need. Free Home Valuation.
Advice for Spokane Buyers
Buyers keep all unused buydown funds if they decide to refinance before the three years are up. This product is not an Adjustable Rate Mortgage (ARM). Because it is fixed, your rate will never randomly jump higher than your original locked base rate. Also, this beats buying standard permanent discount points. When you buy permanent points, you lose that money entirely if you refinance early. With the 3-2-1 buydown, the seller’s cash sits safely in an escrow account. So, if you refinance in year two, the lender applies that remaining $9,500 directly to your principal loan balance.
Looking to buy or sell? Visit spokanehomeguy.com or call 509-990-SOLD (7653) to get started!
FAQ
A 3-2-1 buydown lowers your interest rate by 3% the first year, 2% the second year, and 1% the third year. After that, your rate returns to the fixed base rate for the rest of the loan. It saves buyers thousands in early mortgage payments.
The seller pays for the buydown as a closing concession. In a typical $465,000 home purchase, it costs the seller about $18,955. This equals roughly 4.5% of the purchase price. It is often much cheaper for sellers than doing a large price drop.
No, you do not lose the money. The buydown funds sit in an escrow account. If you refinance before the three years end, the lender applies the unused money directly to your principal loan balance. You get the full financial benefit.
No, it is entirely different. An Adjustable Rate Mortgage (ARM) can increase unpredictably based on the market. A 3-2-1 buydown uses a standard 30-year fixed rate. Your payment will never exceed the original base rate you securely locked in at closing.