A 1-0 buydown is a type of temporary rate buydown where the interest rate is reduced by 1% for the first year of the mortgage. After the first year, the interest rate returns to the original note rate for the remainder of the loan term. Here are the key details and examples related to a 1-0 buydown:
How It Works:
- First Year: The interest rate is reduced by 1% from the original note rate.
- Subsequent Years: The interest rate returns to the original note rate for the remainder of the loan term.
Example Calculation:
For a loan amount of $350,000 with an original interest rate of 5%, the principal and interest (P&I) payments would be as follows:
- Year 1:
- Interest Rate: 4% (5% - 1%)
- P&I Payment: $1,671
- Monthly Difference: $208 ($1,879 - $1,671)
- Annual Savings: $2,496
- Years 2-30:
- Interest Rate: 5%
- P&I Payment: $1,879
- Monthly Difference: $0
- Annual Savings: $0
- Total Buydown Amount: $2,496
