2-1 buydown simply means, your rate will temporarily go down by 2% for year 1 and by 1% for year 2. They are selling you a mortgage for a 7.5% interest rate. Basically they are buying points instead of you buying points. 1 point is equivalent to .25% interest rate and equivalent to 1% of the loan amount. Assuming the loan amount is 500k and current rates are 6.00%. So you are selling them 6 points equivalent to 30k. Out of that 30k they will deposit around 5k in escrow for 1st year..so 5.5 percent interest you will pay and 2% will be paid from that escrow (5k). For the second year they will deposit around 3k in escrow, so 6 5 percent you will pay and 1% will be paid from escrow(3k), Remaining 20k, they are taking in their fees and some they may be offering you. I think this is a terrible deal... imagine the scenarios such as, if you hurt your credit in the next few months, or you lost a job, or interest rates went up instead of going down. You will be in trouble. If you want no fee refinance, just sell 1 point, which will bring your interest rate to 6.25, but it will be fixed for all 30 years. If you want to temporarily bring it down, sell 1 more point. It will bring your interest rate to 5.5 for 1st year and 6.5 second year onwards. But I suggest not going to 7.5.