A temporary buydown lowers your mortgage payment for the first one to three years — and the seller or lender usually funds it. Enter your loan details to see the year-1 and year-2 payments, the total escrow subsidy, and the month the buydown pays for itself.
Default pricing is about 2% of the loan for a 2-1 buydown and about 3% for a 3-2-1. Tick this box if your lender quoted a different figure.
| Year | Rate | Monthly P&I | Monthly Savings | Annual Subsidy |
|---|---|---|---|---|
| Year 1 | 4.50% | $2,026.76 | $501.60 | $6,019.20 |
| Year 2 | 5.50% | $2,271.42 | $256.94 | $3,083.28 |
| Year 3+ (full rate) | 6.50% | $2,528.36 | $0.00 | $0.00 |
| Option | Upfront Cost | Year-1 Payment | Payment After Buydown | Break-Even | 5-Year Total Cost |
|---|---|---|---|---|---|
| No buydown | $0 | $0.00 | $0.00 | — | $0.00 |
| 2-1 temporary buydown | $0 | $0.00 | $0.00 | — | $0.00 |
| Permanent 1-point buydown | $0 | $0.00 | $0.00 | — | $0.00 |
Benchmark assumptions: a 2-1 buydown costs roughly 2% of the loan amount, a permanent point costs 1% and typically trims about 0.25% off the rate. A 2-1 buydown is usually quicker to break even, but its benefit disappears after year 2 — the permanent point keeps saving for the life of the loan.
Situation: A buyer puts 20% down and takes a $400,000 30-year loan at 6.5%. The seller agrees to fund a 2-1 buydown, costing about 2% of the loan ($8,000) into an escrow account.
Calculation: Full payment at 6.5% is $2,528.36. Year 1 the buyer pays 4.5% = $2,026.76 (saving $501.60/mo). Year 2 the buyer pays 5.5% = $2,271.42 (saving $256.94/mo).
Total subsidy: ($501.60 × 12) + ($256.94 × 12) = $6,019.20 + $3,083.28 ≈ $9,100 released from escrow over 24 months.
Situation: A slow-market seller offers a 3% concession on a $500,000 home instead of cutting the price. The buyer finances $450,000 at 6.5% for 30 years.
Calculation: The 3-2-1 subsidy equals roughly 3% of the loan, about $13,500 of interest paid down on the buyer's behalf — $6,750 (3% off), $4,500 (2% off) and $2,250 (1% off) in successive years.
Why it works: The seller keeps the headline price intact while the buyer's year-1 payment looks far more affordable.
Situation: A buyer expects rates to fall within 18 months and takes a 1-0 buydown (1% off for year 1 only) on a $300,000 loan at 6.5%.
Calculation: Year-1 rate is 5.5%, saving about $190 per month for 12 months ≈ $2,200, against a buydown cost of about 1% ($3,000) if the buyer funds it themselves.
Lesson: A 1-0 buydown makes sense mainly when the seller pays for it or when you are confident you will refinance before month 12.
L = loan amount (principal borrowed)
r = annual note rate ÷ 12 ÷ 100 (the monthly rate)
n = loan term in years × 12 (total monthly payments)
discount[y] = 3, 2, 1 for a 3-2-1 buydown; 2, 1 for a 2-1; 1 for a 1-0
Buydown cost = loan amount × the price expressed as a percent of the loan
| Buydown | Year 1 | Year 2 | Year 3 | Typical Cost |
|---|---|---|---|---|
| 3-2-1 | −3% | −2% | −1% | ~3% of loan |
| 2-1 | −2% | −1% | note rate | ~2% of loan |
| 1-0 | −1% | note rate | note rate | ~1% of loan |
Permanent discount points are different: you pay once, the rate drops for the full term, and the saving never expires. Buydowns are temporary — the trade-off is a bigger payment relief now for a shorter benefit window.
A 2-1 buydown often beats paying permanent points if you expect to refinance within roughly 2-3 years, because you recapture the benefit quickly.
Fannie Mae and Freddie Mac allow seller-paid temporary buydowns within interested-party contribution limits: up to 3% of price at LTV above 75%, 6% at or below 75%, and 9% for some programs; FHA allows up to 6%.
The average 30-year fixed rate has hovered near 6.3%-6.8% through 2025-2026, which makes the first-year payment relief of a buydown unusually valuable.
Lenders underwrite at the full note rate, so a buydown does not increase how much house you can afford — it changes the payment shape, not the qualification ceiling.
A temporary buydown is a payment-shaping tool, not a discount on the house. The most common user is the first-time buyer who is short on cash. Rather than draining savings for permanent discount points at closing, that buyer accepts a subsidy paid into an escrow account by the seller, and the relief lands exactly when moving costs, furniture and repairs are heaviest. The second common user is the seller in a slow market. Instead of cutting the asking price — which sets a new comparable for the neighbourhood — the seller offers a concession that funds the buyer's first two years of payments while the headline price stays intact.
The third group is the buyer who expects to refinance in 24 to 36 months. With the average 30-year fixed rate lingering near 6.3%-6.8% across 2025-2026, many buyers expect to refinance once rates retreat. A 2-1 buydown suits them: the biggest benefit lands in year one and is not wasted if the loan is replaced early, because the unused escrow balance is credited at payoff.
Take a $400,000 loan at 6.5% over 30 years. The full payment is $2,528.36 a month. A 2-1 buydown costs about 2% of the loan — roughly $8,000 funded into escrow — and drops year one to 4.5%, or $2,026.76 (a $501.60 monthly saving), then year two to 5.5%, or $2,271.42 (a $256.94 saving). Add the two years together and the escrow releases about $9,100 of subsidy.
Now compare a permanent 1-point buydown: 1% of the loan ($4,000) typically removes about 0.25% from the rate, cutting the payment to roughly $2,463 — a saving of about $65 a month that never expires. Relief is far smaller up front and takes about five years to repay, but then keeps saving for the remaining 25 years.
A price cut is the third option. Knocking $8,000 off a $400,000 home lowers the loan to $392,000 and the payment by only about $50 a month — yet it reduces the debt permanently. The trade-off: a price cut weakens the seller's comparables, while a seller-funded buydown leaves the contract price alone.
~$8,000 cost. Saves about $501/month in year 1 and $257/month in year 2. Breaks even in roughly 16 months. Best when you will refinance or sell inside 2-3 years.
~$4,000 cost. Saves about $65/month forever. Break-even around five years. Best for buyers who will keep the loan long-term.
$8,000 off price. Lowers the payment about $50/month permanently and improves equity. Weakens the seller's comparables, so sellers often prefer a concession.
A temporary buydown is not a lower rate written into the note — the note rate stays exactly as agreed. Instead, the money needed to cover the difference is funded into escrow at closing, usually by the seller, sometimes by the lender, occasionally by the buyer. Each month the servicer draws the shortfall from that account, so what you actually pay looks like the discounted payment.
The escrow equals the sum of all annual subsidies: roughly $9,100 for a $400,000 2-1 buydown, and closer to 3% of the loan for a 3-2-1. Once the scheduled years end the escrow is drained and your payment steps up to the full note rate — a predictable step-up lenders disclose in the closing documents.
Two practical points matter. First, if you refinance, sell, or pay off during the buydown years, the unused escrow balance is credited to you — the subsidy is not forfeited, though you should confirm the mechanics in your loan documents. Second, a seller-paid concession that lowers your payment is generally treated as a price reduction rather than taxable income under standard IRS treatment of seller-paid items, while a buyer-funded buydown is simply interest paid in advance. Tax situations differ, so confirm with a qualified tax professional.
⚠️ Disclaimer: These results are estimates for planning purposes only and do not constitute tax, legal, or financial advice. Actual buydown pricing, escrow mechanics, seller-contribution caps, and lender fees vary by loan program, credit profile, property type, and lender. Qualifying-income requirements are set by the lender, and temporary buydowns do not change them. Confirm every figure with your loan officer, and consult a qualified tax professional about how a seller-paid or buyer-funded buydown is treated on your return.