SAFE MLO Mortgage Products & Industry Terms question: borrower effectively pay

SAFE MLOMortgage Products & Industry Terms

A builder funds a 2-1 buydown on a 6.5% 30-year fixed-rate loan. What rates will the borrower effectively pay?

A 4.5% in year 1, 5.5% in year 2, then 6.5%
B 4.5% for the full 30 years
C 2% in year 1, 1% in year 2, then 6.5%
D 6.5% in year 1, 5.5% in year 2, then 4.5%

Show the answer and explanation

Answer: A. 4.5% in year 1, 5.5% in year 2, then 6.5%

A 2-1 temporary buydown reduces the effective rate by 2 points in year 1 and 1 point in year 2, with the difference funded up front (here by the builder) into an account that subsidizes the payments; from year 3 the borrower pays the note rate of 6.5%. A permanent buydown, by contrast, uses discount points to lower the note rate for the life of the loan. Source: Mortgage industry terminology; temporary buydowns; Fannie Mae Selling Guide, Chapter B2-1 (Mortgage Eligibility) (as at 11 Oct 2026).

Common mistake

Confusing a temporary buydown with a permanent rate reduction.

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SAFE MLO Mortgage Products & Industry Terms question: borrower effectively pay

Answer: A. 4.5% in year 1, 5.5% in year 2, then 6.5%

Common mistake

Related SAFE MLO practice questions

SAFE MLO Mortgage Products & Industry Terms question: borrower effectively pay

Answer: A. 4.5% in year 1, 5.5% in year 2, then 6.5%

Common mistake

Related SAFE MLO practice questions