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What is the key difference between a permanent buydown (discount points) and a temporary buydown (2-1)?

General Mortgage Knowledge · 20% of the SAFE exameasy

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Correct answer: Permanent reduces the rate for the life of the loan; temporary reduces rate for a set period then returns to the note rate

Permanent buydown (discount points): borrower or seller pays points upfront, and the rate stays REDUCED for the entire loan term (e.g., 30 years). Temporary buydown (2-1 or 3-2-1): seller/builder pays a lump sum, rate is reduced for the first 1-3 years, then STEPS UP to the full note rate. Permanent = lower rate forever, higher upfront cost. Temporary = lower rate initially, payment shock when subsidized period ends.

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