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1040 Red Brooke Dr, Colorado Springs, CO 80911
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If you bought a home in Colorado two or three years ago with a 2-1 buydown, your payment is about to hit the full rate, and mortgage rates never dropped like everyone expected. Agents in south Denver, Littleton, Highlands Ranch and Parker report homeowners who locked near 7% now facing year three with no refinance and little equity. Here is what the jump costs, and the six ways Colorado homeowners are handling it.
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2 points Year 1 discount The rate starts 2 percentage points below the note rate | 1 point Year 2 discount Then 1 point below |
Full rate Year 3 onward The payment the loan was written at | 7.49% Rates this month The highest 30-year rate in almost three years |
How a 2-1 buydown works, and why year three hurts
A 2-1 buydown is a temporary discount, not a lower rate. A seller or builder pays money into an account at closing, and the lender uses it to lower your payment: 2 points off the rate in year one, 1 point off in year two, then the full note rate for the rest of the loan. Builders in the south metro used them heavily in 2023 and 2024 to sell new homes at 7% rates. The bet was that rates would fall and owners would refinance before year three. Rates did not fall: the 30-year rate hit 7.49% this month.
Monthly principal + interest on a $450,000 loan at a 7% note rate
That is $578 a month more than year one, $6,936 a year, before any rise in property taxes or insurance. Colorado property tax bills and homeowners insurance premiums both rose in the same period, so the escrow part of the payment climbed too.
Why refinancing does not fix it right now
A refinance only helps if the new rate is below your note rate. With 30-year rates at 7.49% (see Colorado mortgage rates today), a 7% note rate is already the better deal. And many owners who bought with a small down payment do not have the equity a refinance needs, because south Denver prices are flat to down since 2023.
The equity squeeze, in one example
Take a $500,000 home bought in 2023 with 3.5% down on an FHA loan. The loan starts at about $490,900 after the upfront mortgage insurance is added. Three years of payments bring it to about $475,000. If the home sells for the same $500,000 today, selling costs of 6% to 7% leave about $467,500, which is $7,500 short of the payoff. That owner has to bring money to closing to sell.
What expiring buydowns do to the Colorado market
Expect more listings from 2023-2024 buyers, more short sales, and a rise in foreclosure filings in the new-build suburbs where buydowns were most common. Three things happen at once when buydowns expire:
- More homes for sale. Owners who can sell, do. Metro Denver already had 13,567 homes for sale in September, the most for any September since 2011, and new-build neighborhoods add the same floor plans at the same time.
- More short sales. Owners who bought with 3% to 5% down in 2023 and 2024 owe close to what the home sells for after selling costs.
- More foreclosure filings. National foreclosure filings rose year over year for twelve straight months into 2026, from historic lows. In Colorado, a foreclosure runs through the county Public Trustee, and the sale is set about four months after the lender records the notice of election and demand. That window is the time to act.
Who feels the year-three jump first
For buyers this means more choice in south metro new-build communities and sellers ready to deal. For owners in trouble it means acting early: a sale or short sale before a foreclosure filing protects credit and keeps choices open. See Colorado foreclosure homes and short sale help.
Six ways Colorado homeowners are handling the year-three jump
1. Re-budget for the full payment now
Your year-three payment was on the closing disclosure. Pull it out, add the new escrow amount from your servicer, and set the budget before the first full payment arrives.
2. Ask your servicer about unused buydown funds
If you refinance or sell before the buydown ends, any money left in the buydown account goes back toward your loan, according to the buydown agreement. Read yours.
3. Appeal your property tax value and shop the insurance
A lower assessed value and a re-shopped policy lower the escrow half of the payment. Both are the fastest money most owners find.
4. Sell while you have equity, or price to sell fast
If the full payment does not work long term, the best time to sell is before you fall behind. Get a free home value report or a Smart Pricing Report to see your number today, and read how to sell your house fast in Colorado.
5. Rent it out
Some owners move and rent the home for what the full payment costs. Run the rent numbers before you list: see rent or buy in Colorado.
6. Owe more than it is worth? Talk short sale before you miss payments
A short sale lets the lender accept less than the payoff, and it does far less damage than a foreclosure. Start with Colorado short sale help or a Denver short sale realtor. Talk to your servicer about a loan modification at the same time.
Buying now? Skip the buydown trap
A buyer today has a better tool than a temporary buydown: an assumable mortgage at a 3% or 4% rate that lasts the life of the loan, or a permanent rate buydown paid at closing. Ask for the payment in year three before you sign anything.
