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temporary buydowns

Many of our loan programs permit the use of temporary buydowns.

A temporary buydown is a reduction in the interest rate you actually pay on your loan for a stated period of time.

For example, a builder might offer to provide the buyer of one of his houses funds for a "2-1 Buydown." If the interest rate which the borrower agrees to pay on his or her fixed rate mortgage note at closing is 6.50%, then a 2-1 Buydown will mean that the borrower will actually make monthly payments for the first 12 months at 2% below this "note rate," or at 4.50% in this example. For the following 12 months, payments would be due at 5.50%, or 1% below the note rate. At the end of 24 months, the borrower would make payments at the note rate of interest, 6.50%, for the remainder of the loan.

Again, a 2-1 Buydown offered on a 6.50% loan, would mean that payments are made by the borrower as follows:

1st 12 months Payments at 4.50% interest
2nd 12 months Payments at 5.50% interest
Remaining Term Payments at 6.50% interest


The builder will pay a sum to the lender, in this example, equal to the amount of money the lender is not receiving from the borrower in interest in order to "fund" the buydown. In the above example, this would be enough money to supplement the interest difference between the payment at 4.50% and 5.50% and the actual payment due at 6.50%. The lender will inform the borrower of the exact amount due in monthly payments on the mortgage loan throughout this process.

Sometimes, it is the lender, not a builder or other third party, who is providing the buydown to the borrower. See SunTrust's ARM Alternative for information on this kind of buydown.

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