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Chris Salese

If you were able to read my last column, the title of it also contained the word “down,” as does this one.

Yet ironically, the recent interest rate trend has been slightly going up.

Maybe it’s just some sort of strange attempt at a positive subliminal message on my part. Although likely it’s a direct reflection and reality that lenders are changing course to realign with current market conditions.

For example, as I wrote previously, there are more loan programs available these days with less “down” or zero “down” to help borrowers better meet the demands they face from higher priced homes for sale.

Now lenders are starting to dust off their old product menus and re-package the 2-1 buy-down loan program to assist borrowers with potential rising interest rates.

Despite this very minimal recent upward trend in interest rates, it’s interesting to see all of this continue to develop behind the scenes with different lenders, as it is sort of like the signal to the end of one cycle and the beginning of another one. Or perhaps it’s not, we shall see.

How does the 2-1 buy-down program work?

The buy-down program is not an adjustable rate or interest-only mortgage. It’s a 30-year fixed rate purchase program and can be applied to a Conventional, FHA or VA loan product.

It works as a temporary rate buy-down from your note rate to allow for a lower starting rate and a reduced monthly payment during your initial two years in the loan program.

During year one, your rate is bought down a full 2 percent below the note rate.

In year two, it is bought down 1 percent and then in year three through year 30, your payment will be the full principal and interest amount due as required by the note rate.

Whether you are a recent college graduate or a borrower with extensive employment history, this program might allow you to ease into your new mortgage payments over a two-year period to avoid payment shock.

It effectively gives you some flexibility without the fear of unpredictable payments. More importantly, it can be funded by the buyer or the seller in what’s called a buy-down account that’s established at closing.

In fact, if you are anticipating any tax refund from the IRS this year, this may be a great way to leverage those funds toward a 2-1 rate buy-down program.

Ultimately, the term “buy-down” should not to be confused with discount points, and you should consult with your lender on how to best structure your financing as some restrictions will certainly apply.

While nobody knows for sure where local home prices will end up in the near future, what we know today is that interest rates still remain historically low.

That said, if you are able to utilize the 2-1 buy-down loan program in conjunction with today’s historically low interest rates, you could really enjoy some additional cash flow flexibility during your first couple years of home-ownership.

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Chris Salese can be reached at or 707 363-4439. He is a licensed California mortgage lender (LO NMLS #254469 — State Lic #CA-DBO 254469 — Corp Lic #4170013 Corp NMLS #3113) and equal housing lender.