3-2-1 Buydown Mortgage

A 3-2-1 buydown mortgage is a type of loan that starts out with a low interest rate and rises over the next several years until it reaches its permanent rate. With a 3-2-1 buydown mortgage, the borrower pays a lower interest rate over the first  three years in return for an up-front payment to the lender. The interest rate is reduced by 3% in the first year, 2% in the second year, and 1% in the third year. For example, a 5% mortgage would charge just 2% in year one. After the buydown period ends, the lender will charge the full interest rate for the remainder of the mortgage.