Beware of interest rates that seem too good to be true
CONTRA COSTA COUNTY, CA (Apr. 16, 2025) — With today’s turbulent mortgage market, lenders are getting creative to help consumers cope with high interest rates. But not every “solution” is the right fit for everyone.
One option that’s gaining traction is the lender-paid buydown on a refinance. It works similarly to the seller-paid 2-1 buydown you might come across when purchasing a home.
A 2-1 buydown is a financing strategy where the interest rate is temporarily reduced for the first two years of the loan:
- In year one, your rate is 2% lower than the note rate.
- In year two, it’s 1% lower.
- In year three and beyond, the rate returns to the full note rate.
This can be helpful if you need temporary relief from high monthly payments, especially if you expect your financial situation to improve or if you’re betting on rates dropping within the next 36 months—giving you a chance to refinance into something better.
However, here’s the catch: the lender builds the cost of this buydown into the final interest rate. So while you enjoy that temporary discount, the actual long-term rate you’re locking in could be higher than your current one.
The full picture
That’s why it’s important to look beyond the initial savings and consider the full picture. What seems like a deal today might cost more in the long run.
Also, be cautious of marketing tactics that use phrases like “introductory rate”—they can sound appealing but often come with strings attached. If you receive a mailer or ad that appears to be from your current mortgage company, take a closer look. If the fine print at the bottom names a completely different company, that’s a red flag. These offers are often designed just to get you to call, even if you don’t qualify, so they can pitch you something like the option above—or worse.
Bottom line: if it sounds too good to be true, it probably deserves a second look.
Anna Kussmaul is a mortgage broker handling multiple loan types. Email her at Anna@StoneCastleMortgage.com.