Find out what a temporary 3-2-1, 2-1, 1-1 or 1-0 buydown really costs and what you pay each year, or whether a permanent buydown with discount points pays off before you sell or refinance.
Last updated:
Loan
$
% / yr
The permanent rate on your mortgage note.
Buydown type
Who pays & how long you keep the loan
Your out-of-pocket cost becomes zero; the savings stay the same.
points
1 point = 1% of the loan amount.
%
Often 0.125% to 0.375% per point; ask your lender.
years
Before you sell or refinance.
Enter your values to see the result.
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How to use the Mortgage Rate Buydown Calculator
Enter the loan amount, the note rate (the permanent rate) and the loan term.
Pick the buydown type: 3-2-1, 2-1, 1-1 or 1-0 for a temporary buydown, or Permanent for discount points.
Tick the seller-paid box if the seller, builder or lender is funding the buydown as a concession.
For a permanent buydown, enter the points, the rate reduction per point and how many years you will keep the loan.
Read the cost, the payment by year and the break-even point, then download the schedule as CSV.
How rate buydowns are calculated
Every buydown starts from the standard payment formula M = L × r(1 + r)n ÷ ((1 + r)n − 1), where L is the loan amount, r the monthly rate (annual rate ÷ 12 ÷ 100) and n the number of monthly payments.
Temporary buydown: for each buydown year, compute the payment at the reduced rate. The yearly subsidy is (note payment − reduced payment) × 12, and the buydown cost is the sum of those subsidies.
Permanent buydown: the cost is points × 1% of the loan. Break-even month = cost ÷ monthly savings. After that month every payment is pure savings.
Example: $400,000 for 30 years at a 7% note rate has a full payment of $2,661.21. With a 2-1 buydown, year 1 is at 5% ($2,147.29) and year 2 at 6% ($2,398.20). The subsidy is $513.92 × 12 + $263.01 × 12 = about $9,323, roughly 2.33% of the loan.
Temporary buydown cost per $100,000 borrowed (30-year loan)
Approximate subsidy needed for each $100,000 of loan. Multiply by your loan in hundred-thousands.
Note rate
1-0 buydown
2-1 buydown
3-2-1 buydown
6.0%
$753
$2,218
$4,354
6.5%
$771
$2,276
$4,472
7.0%
$789
$2,331
$4,585
7.5%
$806
$2,383
$4,693
8.0%
$822
$2,432
$4,795
A 1-1 buydown (1% off for two years) costs about twice the 1-0 figure.
Tips before you agree to a buydown
Budget for the full payment. A temporary buydown only delays the note-rate payment; plan for the year it ends.
Compare against a price cut. A seller concession spent on a buydown could instead lower the price or pay closing costs; run both options.
Check the concession limit of your loan program, since a seller-paid buydown counts toward it.
Points pay off only if you stay. If you may refinance when rates fall, a temporary buydown or no points can be the cheaper choice.
Ask for the rate per point in writing. The reduction per point varies by lender and day; use the actual figures from your Loan Estimate.
Frequently asked questions
How does a 2-1 buydown work?
With a 2-1 buydown the rate is 2 percentage points below the note rate in year 1 and 1 point below in year 2. From year 3 you pay the full note rate for the rest of the loan. The money that covers the lower payments is paid up front and held in an escrow account.
How is the cost of a temporary buydown calculated?
The cost is the sum of the monthly payment differences. For each buydown year, take the full payment at the note rate minus the payment at the reduced rate, multiply by 12, and add the years together. On a $400,000, 30-year loan at 7%, a 2-1 buydown costs about $9,323.
What is the difference between a temporary and a permanent buydown?
A temporary buydown lowers the payment only for the first one to three years and costs exactly the savings it gives. A permanent buydown uses discount points to lower the rate for the life of the loan, so it only pays off if you keep the loan past the break-even month.
Who pays for a mortgage rate buydown?
Anyone can fund it: the buyer, the seller, a home builder or the lender. Seller and builder-paid temporary buydowns are common when homes sit on the market, and they count toward the seller concession limits of your loan program.
Do I qualify for the loan at the bought-down rate?
Usually not. Most lenders qualify you on the payment at the full note rate, because that is the payment you will have once the buydown ends. Make sure the full payment fits your budget.
What happens to unused buydown funds if I refinance or sell?
Rules depend on the loan program and the buydown agreement. Leftover escrow funds are often credited toward the loan balance or paid out at payoff, but check your agreement before you count on it.
How many months does it take for discount points to break even?
Divide the cost of the points by the monthly payment savings. For example, 2 points on $400,000 cost $8,000; if they cut the rate from 7% to 6.5% the payment drops by about $132.94, so break-even is about 61 months.
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