A mortgage rate buydown can lower your interest rate temporarily or permanently, reducing your monthly payment. This guide explains how 2-1 buydowns and discount points work, who pays for them, and when a buydown may help.
The short answer: a rate buydown lowers your rate either for a set period (temporary, like a 2-1 buydown) or for the life of the loan (permanent, with discount points). Get a quote, use the mortgage calculator, and set up rate alerts.
What a rate buydown is
A buydown is an upfront payment that reduces your mortgage rate. It can be paid by you, the seller, or the builder. A lower rate means a lower monthly payment.
Temporary buydowns (2-1 and 1-0)
A 2-1 buydown lowers your rate by 2% in year 1 and 1% in year 2, then the rate returns to the note rate in year 3.
Illustrative example only:
- Note rate: 7%
- Year 1 rate: 5%
- Year 2 rate: 6%
- Year 3 and after: 7%
This can help if you expect your income to rise before the rate resets.
Permanent buydowns with discount points
Discount points are upfront fees that permanently lower your rate for the life of the loan. One point typically equals 1% of the loan amount and lowers the rate by a fraction of a percent.
Seller and builder-paid buydowns
Sellers or builders may pay for a buydown as an incentive. This can be more valuable than a price reduction because it lowers your monthly payment.
Estimating your break-even
Compare the upfront cost of the buydown to the monthly savings. Divide the cost by the monthly savings to find how many months it takes to break even. If you stay longer than that, the buydown may pay off.
Is a buydown right for you?
A buydown may fit if you:
- Plan to stay in the home long enough to break even
- Have seller or builder help paying for it
- Want a lower payment now
When you are ready, get a free quote.
This article is for general information only and is not a commitment to lend. Buydown terms depend on your loan and lender. Examples are illustrative only.
