Finance
A Colorado buyer uses a 'buydown' to reduce the mortgage interest rate on a new home. In a 2-1 buydown, the interest rate in year one is:
AA. The same as the note rate
BB. 2 percentage points below the note rate✓ Correct
CC. 1 percentage point above the note rate
DD. Half the note rate
Explanation
In a 2-1 buydown, the borrower pays a reduced rate for the first two years: the rate is 2 percentage points below the note rate in year 1, 1 percentage point below in year 2, and then the full note rate for the remainder of the loan. The seller or builder often pays the cost of the buydown as a concession.
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