I'll try to explain this in the most simple terms I can.

I think these temporary buydowns are good options only if you have so many seller credits that you don't know what to do with the leftovers.

Here's how it works

Pretend your seller gives $10,000.00 for a 2/1 buydown.

That money is set aside, pretend it's in a piggy bank.

Let's also say your permanent mortgage payment is $2,000 per month.

What the 2/1 buydown does is it takes money from that piggy bank to help you get a lower payment for the first 2 years.

Year 1, the piggy bank gives $500 per month. So you're paying $1,500.

Once the first year is up, the piggy bank has paid $6,000 and has a remaining balance of $4,000

Year 2, the piggy bank gives $333.33 per month. So you're paying $1,666.67 per month.

By the end of year 2, the piggy bank is empty.

Once year 3 starts, you'll be paying $2,000 per month.

Here's how it doesn't work

You cannot pay for it yourself. It must come from the seller.

This does not make your interest rate 2% lower the first year. I want to clear that up. Otherwise you'd be having a ton more of your payment, plus the piggy bank's payment, going to principal.

It isn't helping the total interest charged.

It helps make the monthly payment as if it were 2% lower. But the fact that the piggy bank has to supplement, means that the interest you pay is the exact same.

Here's what happens if you don't use it

This is the best part about it.

Let's say you refinance or sell after 1 year.

That remaining $4k in the piggybank? That gets applied straight toward your principal balance.

Are there other temporary buydowns?

Yes. Say you have a 1/0 buydown. Let's say it costs $4k.

It just lowers your payment $333.33 for the first year. Then you're back to normal payments.

There's a 3/2/1 buydown, a 1/1 buydown and they work similarly.

Summary

Again, I think it's a great option if you have excess seller credits.

It isn't something you should rely on. Don't get caught up in the idea that you will refinance before the 2 years are up, because you don't know where rates will be, nor does your realtor or lender. Nobody knows, so just don't bet it all on refinancing.

That's how so many people got talked into ARM mortgages and overextended themselves in 2006-2008.