A temporary 2/1 buydown loan reduces the note rate by what percentage in year two?

In a temporary 2/1 buydown loan, the borrower benefits from a reduced interest rate for the first two years. In year one, the interest rate is decreased by 2 percentage points from the note rate. For year two, the reduction is typically by 1 percentage point. This structure allows the borrower to have reduced payments in the initial years, making it easier to manage cash flow while potentially anticipating increases in income or financial stability in the future.

Thus, in year two, the note rate reduction would be 1%, which is why the option indicating a 1% reduction is the correct choice. This understanding of buydown loans is crucial for mortgage loan officers to effectively explain options to clients looking for potential strategies for managing their mortgage payments in the early years of the loan.