What Is a 2-1 Buydown (and Why Buyers Are Asking About It)?
Lately, almost every buyer I talk to has the same concern: “What’s my monthly payment going to be?” With interest rates higher than we’ve seen in years, that worry makes sense.
One tool I’ve been explaining more often is the 2-1 buydown. It’s not new, but it’s making a comeback because it gives buyers some breathing room in those first years of homeownership.
What’s a 2-1 Buydown?
Think of it as “training wheels” for your mortgage:
Year 1: Your rate is 2% lower than the one you qualified for.
Year 2: Your rate is 1% lower.
Year 3 and beyond: The training wheels come off—you’re paying the full rate you locked in, and that stays in place unless you refinance.
It’s a temporary way to step into your full payment, not a permanent discount.
Who Pays for It?
Here on Maui, I mostly see sellers offering a buydown as an incentive instead of lowering their price. In new construction, builders sometimes use it as a tool to attract buyers.
Questions Buyers Often Ask
“Who pays for it?”
The seller typically covers the cost by giving a credit at closing. That money is set aside in a special account to reduce the buyer’s payments for the first two years.
“Why would a seller offer a buydown instead of lowering their price? Aren’t they still out of pocket?”
Yes, the seller is giving up money either way—but a buydown provides much more value to the buyer than a simple price cut.
A $20–25K price reduction barely changes the monthly payment.
That same $20–25K used for a buydown creates real monthly savings for two years.
For sellers, this can make their home more attractive without lowering the recorded sale price, which helps with neighborhood comps.
“What happens in year three?”
Your payment resets to the full note rate. That’s why I always make sure clients feel comfortable with that number before moving forward.
“What if rates are lower by then?”
If interest rates drop, you can refinance into a new loan at the lower rate. Many people use a 2-1 buydown as a bridge until refinancing makes sense.
“Why wouldn’t I do this?”
It’s not for everyone. If you’re already stretched thin, the jump in year three could feel like too much. Sometimes using seller credit for a permanent buydown—which lowers your rate for the life of the loan—may be a better fit.
Permanent vs. Temporary Buydown
A permanent buydown (often called “buying points”) means paying upfront at closing to reduce your rate for the life of the loan.
2-1 Buydown: Temporary, lower upfront cost, good if you expect to refinance soon.
Permanent Buydown: Bigger upfront cost, but lasting savings if you’ll keep the loan long-term.
My Take
For me, it always comes back to this: how does the payment feel? Do you feel relief and space to breathe, or does it still feel tight? Numbers matter, but peace of mind matters just as much. Talk to a local Hawaii lender for more information and insight into what works best for you.
I’ll be sitting down with my lender friend soon for a social media Q&A where we’ll talk through real Maui scenarios, so you can see exactly how these options play out. Stay tuned!
