Is a temporary buydown worth it?
Your rate is not actually lower. Here is what is really happening.
A temporary buydown reduces your payment for a limited time. It does not reduce your interest rate. The difference between those two things is everything.
The rates and costs on this page are illustrations chosen to explain the math. They are not quotes. Real pricing changes daily and varies by lender, loan program, and scenario.
Need the quick version?See the key points
- A temporary buydown lowers the payment for a limited period, but it does not change the mortgage's permanent note rate.
- Money is set aside upfront to cover the difference between the reduced payment and the full scheduled payment.
- Seller and lender funding each involve a trade-off through the negotiated price, permanent rate, or other transaction terms.
- Qualification and long-term affordability are based on the full payment that applies after the temporary subsidy ends.
What it actually is
A prepaid fund for your mortgage payment. Not a lower rate.
When you get a temporary buydown, a lump sum of money is deposited into an escrow account at closing. Each month during the buydown period, the servicer pulls from that account to make up the difference between your reduced payment and the full payment at your note rate.
It is not a rate reduction. Your note rate, the rate on your loan documents, the rate that determines how much interest accrues on your balance every single day, does not change. It is the same from month one through month 360.
It is a payment subsidy. Someone puts money into an account. That account pays part of your mortgage payment for you during the buydown period. When the account runs out, you pay the full amount.
Temporary vs. permanent buydown
Temporary buydown
- Note rate stays the same
- Payments subsidized from a prepaid fund
- Full payment kicks in after the buydown period
- No long-term rate benefit
Permanent buydown (discount points)
- Note rate is actually lowered
- Lower payment for the life of the loan
- Break-even depends on how long the loan lasts
- Builds more equity over time
Same word. Completely different mechanics. Read more about permanent buydowns
The numbers in the name tell you the structure
1-0
Payment calculated at 1% below your note rate for year one. Full payment starts year two.
2-1
Payment calculated at 2% below in year one, 1% below in year two. Full payment starts year three.
3-2-1
Payment calculated at 3% below in year one, 2% below in year two, 1% below in year three. Full payment starts year four.
In every case, your note rate stays the same. The numbers just describe how much of your payment the fund covers and for how long.
The math
How the temporary buydown calculation works.
A 2-1 buydown means your payment is calculated as if the rate were 2% lower in year one and 1% lower in year two. The difference between that reduced payment and the full payment comes out of the buydown fund each month.
2-1 Buydown Example: $500,000 loan at 6.5% note rate
Year 1
Payment calculated at 4.5%
$2,533/mo
Save $627/mo
Year 2
Payment calculated at 5.5%
$2,839/mo
Save $321/mo
Year 3 through 30
Full payment at 6.5%
$3,160/mo
No subsidy
The note rate is still 6.5%
Even in year one when you are paying $2,533/month, your loan is accruing interest at 6.5%. The buydown fund covers the $627/month difference. The full amount IS being paid each month. You are just not the one paying all of it.
Who funds it
Someone always pays for a mortgage buydown. The question is who.
There is no free buydown. Someone always pays. Here are two examples of how that works in practice.
Seller-funded 2-1 buydown
The seller contributes $11,376 as a concession at closing. That money goes into the buydown escrow account.
What is actually happening:
You are buying the home for more. The purchase price is higher to accommodate the concession. At 80% LTV, a $11,376 concession adds approximately $9,101 to your loan balance. You are financing the subsidy at your note rate for 30 years.
Lender-funded 1-0 buydown
The lender offers a "built-in" 1-0 buydown at no upfront cost. They fund the escrow account themselves. Sounds great. Here is the catch.
What is actually happening:
Your note rate is higher than it would otherwise be. The lender gives you a 6.75% note rate instead of 6.5%, then uses the extra margin to fund the 1-0 buydown account. You get one year of lower payments, then pay the higher rate for the remaining 29 years.
The marketing
What mortgage buydown ads do not tell you.
Lenders market "built-in" buydowns as a feature. They advertise the year-one payment prominently and bury the note rate in the fine print. Here is what to watch for.
"Rates starting at 5.75%"
This is the year-one buydown payment rate, not your note rate. Your actual rate is 6.75%. The 5.75% disappears after 12 months. You are locked into the higher rate for 29 more years.
"Free built-in 1-0 buydown"
Nothing is free. The lender is funding the buydown by giving you a higher note rate. Compare their note rate to what you could get elsewhere without the buydown. The difference is what you are actually paying for the "free" feature.
"Lower your payment by $329/month"
For 12 months. Then it goes up to the full amount. The ad shows the savings. It does not show the reset. Ask: what is my payment after 12 months?
The question to ask any lender offering a "built-in" buydown:
"What would my note rate be without the buydown?"
If the answer is lower than what they are quoting with the buydown, you now know exactly what the buydown costs.
When it works
When a temporary buydown can be the right move.
A temporary buydown is a tool. Used in the right situation with clear expectations, it can solve real problems. The key is going in with your eyes open.
Takeaways
What to remember about temporary mortgage buydowns.
A temporary buydown does not lower your rate. It lowers your payment for a limited time using someone else's money, or your own money disguised as someone else's. Know which one you are getting.
If you found this useful
These guides explore related topics you might be wondering about.
Are seller concessions free money?
Why concessions are not free and when the math works in your favor.
Read guideShould I buy down my rate?
How discount points work and the complete break-even math.
Read guideAre there other rate options beyond what I was quoted?
How par pricing, discount points, and lender credits give you a menu of choices.
Read guideBrowse all of our plain-English mortgage guides
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