Clarification on 3-2-1 Buydowns

A standard 3-2-1 buydown always follows the same structure:

Year 1: Interest rate is reduced by 3% from the note rate

Year 2: Reduced by 2%

Year 3: Reduced by 1%

Year 4 onward: Returns to the full note rate

The percentages themselves don’t vary — that’s why it’s called a 3-2-1. What does vary is the cost of the buydown, which depends on the loan amount, current market rates, and the buyer’s qualifications. It’s an excellent tool for helping buyers ease into payments, with the flexibility to refinance if rates drop before the buydown period ends.

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