“The only source of knowledge is experience.” — Albert Einstein
A few weeks ago, I had a conversation with a borrower that really stuck with me.
She had recently purchased a home using a 2-1 temporary buydown to lower her interest rate for the first two years of her mortgage. But when she asked her loan officer if she could refinance, she was told it wasn’t possible until the buydown period ended.
That simply isn’t true—and it broke my heart to hear that kind of misinformation.
This post is here to set the record straight and empower you with the truth. Whether you’re using a 2-1 buydown, a 3-2-1 buydown, or just exploring your mortgage options, this info can help you save thousands and make smarter financial moves.
What Is a 2-1 or 3-2-1 Temporary Buydown?
A temporary buydown is a mortgage strategy where the interest rate is reduced for the first few years of the loan—often paid for by the seller, builder, or even the lender as an incentive to buy.
🔹 2-1 Buydown:
- Year 1: 2% below your note rate
- Year 2: 1% below your note rate
- Year 3+: Full note rate applies
🔹 3-2-1 Buydown:
- Year 1: 3% below note rate
- Year 2: 2% below
- Year 3: 1% below
- Year 4+: Full note rate applies
These programs are a great way to ease into your mortgage—especially if rates are high at the time you purchase. But what many borrowers don’t realize is that you aren’t locked in to ride out the full buydown term.
Common Myth: You Can’t Refinance During a Buydown
Let’s put this myth to bed—once and for all.
🚫 You DO NOT have to wait until your buydown period ends to refinance.
There’s no legal, contractual, or financial rule that says you must “wait it out.”
In fact, if interest rates drop during your buydown period (which has happened recently), refinancing early can be one of the smartest financial decisions you make.
So What Happens to My Buydown Funds?
Buydown funds are typically held in an escrow account and applied monthly to temporarily lower your payments. But if you refinance before the buydown term ends, those unused funds don’t vanish.
They’re refunded by the lender and can often be:
- Credited toward your closing costs
- Reimbursed directly if negotiated
- Used to buy down your new rate again
This is especially powerful if your seller or builder paid for the original buydown. That money could now help you refinance with even lower fees or a lower rate.
Real-World Refinance Scenarios
🎯 Example 1: 2-1 Buydown Refinance
- Purchase Rate: 7.5%
- Year 1 Effective Rate: 5.5%
- Year 2: 6.5%
- Note Rate Kicks In Year 3: 7.5%
But rates drop to 5.75% within the first 8 months.
By refinancing early, the borrower locks in a permanent 5.75%—even better than their buydown’s short-term relief—and uses the unused escrow funds to offset refinance closing costs.
Net savings over 30 years? Easily over $40,000+ in interest.
🎯 Example 2: 3-2-1 Buydown Refinance
- Purchase Rate: 8%
- Year 1: 5%
- Year 2: 6%
- Year 3: 7%
- Year 4+: 8%
At the beginning of year 2, rates drop to 6.25%.
The borrower decides to refinance, rolling the remainder of their buydown funds into the new mortgage’s closing costs.
Even after fees, their new monthly payment is lower, the interest rate is fixed for 30 years, and the buydown funds didn’t go to waste.
Why Refinancing During a Buydown Can Be a Smart Move
✅ Lock in Lower Rates Early
If rates fall even 1% below your note rate, refinancing early could save you tens of thousands over the life of the loan.
✅ Leverage Unused Buydown Funds
Instead of leaving that money in escrow, apply it toward your new loan to reduce costs and barriers to refinancing.
✅ Avoid Future Payment Shock
Rather than bracing for your full note rate to hit, refinance into something sustainable while conditions are favorable.
✅ Tap into Equity
Need cash? A cash-out refinance lets you use your home’s value to consolidate debt or fund improvements—even during a buydown period.
What You Need to Refinance
Don’t stress. Your loan officer will walk you through it, but here’s what to prep:
- Government-issued ID & SSN
- Recent pay stubs or LES (military)
- Last 2 years of W-2s or tax returns
- 2 months of bank statements
- Mortgage statement for your current loan
- VA Certificate of Eligibility if refinancing a VA loan
United Home Mortgage: Your Refinance Partner
At United Home Mortgage, we’re on a mission to help veterans, military families, and everyday homeowners make smart mortgage moves. If you’re in Colorado Springs, near Peterson AFB, Fort Carson, or anywhere in Colorado—we’ve got your back.
Let’s explore if refinancing during your buydown makes sense. The savings might surprise you.
About the Author
Joseph Lord is the founder of United Home Mortgage and a proud Colorado Springs native. With years of experience in lending and a passion for helping others, Joseph empowers clients with honest advice and mortgage solutions that make sense.
