General Mortgage Knowledge · 20% of the SAFE exammedium
Correct answer: The rate is 5% in year one, 6% in year two, and returns to the 7% note rate from year three onward
A 2-1 buydown temporarily reduces the interest rate by 2 percentage points in year one and 1 percentage point in year two, after which the rate returns to the permanent note rate. With a 7% note rate: year one = 5% (7% − 2%), year two = 6% (7% − 1%), year three and beyond = 7%. This gives the borrower lower payments in the early years, helping them build financial stability. "The rate is permanently reduced to 5% for the life o..." reverses the reduction sequence. Options A and D describe a permanent reduction, which is not a 2-1 buydown.
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