A borrower elects to have a 2/1 buydown on an FHA loan at 6.5% fixed interest rate. What will the permanent interest rate be?

In a 2/1 buydown arrangement, the borrower's interest rate is temporarily reduced for the first two years of the loan. During the first year, the rate is reduced by 2 percentage points, and in the second year, it is reduced by 1 percentage point. After these two years, the interest rate returns to the original fixed rate for the remainder of the loan term.

In this scenario, the fixed interest rate of the FHA loan is established at 6.5%. Since there is a temporary buydown, the first-year interest rate would be 4.5% (6.5% - 2%), and the second-year interest rate would increase to 5.5% (6.5% - 1%). However, the permanent interest rate remains as the original rate of 6.5%, which is applicable for the life of the loan after the buydown period ends.

Thus, the permanent interest rate that the borrower will pay after the initial buydown period is indeed 6.5%.