Temporary Buydown

A temporary buydown lowers your mortgage interest rate for the first one, two, or three years of the loan, then steps back up to the full rate for the rest of the term.

It works like a head start: money is set aside in an escrow account at closing and used to cover part of your payment during the early years — usually the most expensive stretch of homeownership, when you are also paying for moving, furniture, and repairs. After the buydown period ends, your payment rises to the normal note rate and stays there.

A temporary buydown is not a permanent rate cut and it does not change the loan you actually qualify for. It simply makes the first few years more affordable, most often using money the seller or builder agreed to contribute.

Each number is how many percentage points your rate is reduced in that year, in order. A 2-1 buydown means 2% off year one, 1% off year two, then the full rate.

Here is every common structure on a 7.5% note rate, so you can see exactly how each one behaves:

• 1-0 — 1% off in year one only. The lightest, cheapest option.
• 1-1 — 1% off for two full years. Steadier relief than 1-0 with no payment jump between year one and two.
• 2-1 — the most popular. A noticeable first-year drop that eases up in two steps.
• 3-2-1 — the deepest relief, spread over three years. Costs the most up front, so it is most common on new construction where the builder funds it.

The bigger the reduction and the more years it lasts, the more the buydown costs — because the cost is simply the total of the payments it covers for you.

The cost equals the total payment savings over the buydown years — and in most deals the seller, builder, or lender pays it, not you.

Because the buydown just pre-funds your own payment relief, the cost and the savings are the same number by design. On a $400,000 loan, a 2-1 buydown runs roughly $7,000–$9,000; a 3-2-1 can be $14,000 or more.

Who typically funds it:

• Seller — the most common source, negotiated as a seller concession in your offer.
• Builder — frequently offered as an incentive on new construction, especially for 3-2-1 buydowns.
• Lender — occasionally as a credit tied to the rate.

A temporary buydown lowers your payment for a few years; a permanent buydown (discount points) lowers your rate for the entire loan. The right choice depends on who is paying and how long you will keep the loan.

Rule of thumb: if someone else is paying, a temporary buydown is hard to beat. If you are paying out of pocket and staying put, run the points option — the permanent savings often win.

A seller-paid buydown usually delivers more month-one relief per dollar than a price cut — but a price cut lowers your loan, payment, and interest for the entire life of the loan.

Quick comparison on a $400,000 purchase:

• $8,000 toward a 2-1 buydown — cuts your payment by roughly $400–$500/month in year one, then less in year two. Big early relief, gone after two years.
• $8,000 price reduction — lowers your loan to $392,000, trimming the payment about $50/month — every month, for 30 years.

Choose the buydown if you need breathing room now or expect to refinance when rates fall. Choose the price reduction if you are planning to stay long term and want the lowest lifetime cost. Use this calculator to see both numbers side by side, then we will help you decide.

No. You qualify at the full note rate, not the temporarily reduced rate.

Lenders are required to make sure you can afford the payment after the buydown ends, so your debt-to-income ratio is calculated on the permanent rate. The lower early payments are a real cash-flow benefit — they just do not change the income you need to be approved. That is intentional: it protects you from a payment you could not handle once the buydown burns off.

Any unused buydown funds are yours — they are credited toward your loan if you sell or refinance before the buydown period ends.

The money lives in a dedicated escrow (buydown) account. If you refinance in year one of a 2-1 buydown, the second year's set-aside has not been spent yet, so it is applied to your payoff balance rather than kept by the lender. You do not lose it.

Your payment rises to the full note-rate payment and stays there for the rest of the loan.

There is no balloon, no surprise, and no penalty — the "full" payment is simply the normal payment you were always qualified for. On a 2-1 buydown the steps look like this: lower payment in year one, a partial step up in year two, then the final payment from year three onward. This calculator shows each year's payment so there are no surprises when the buydown ends. If rates have dropped by then, refinancing is always an option.

Yes. Temporary buydowns are allowed on conventional, FHA, VA, and USDA loans, with a few program rules.

• Conventional & FHA — widely available on primary residences and second homes.
• VA — permitted and popular; the funds must come from the seller, builder, or lender.
• USDA — allowed, subject to program limits.

The buydown must be funded by an interested party (seller, builder, or lender), and you still qualify at the note rate on every program. We can confirm the exact rules for your loan in a quick call.

No — it shows principal and interest (P&I) only, because that is the part a buydown actually changes.

Property taxes, homeowners insurance, and any mortgage insurance stay the same whether or not you have a buydown, so they are left out to keep the comparison clean. For a full monthly payment including those costs, use our What Can I Afford calculator.

Enter your loan amount, note rate, and term, then pick a buydown structure — the results update instantly.

• Type in the loan amount and the note rate from your quote.
• Choose the term (15 or 30 years) and the buydown structure (1-0, 1-1, 2-1, or 3-2-1).
• Read the cost — the number to write into a seller-concession request — and the year-by-year payments.

The verdict card shows what the buydown costs and what your first-year payment becomes, so you can hand the cost figure straight to your agent.