Rates & interest

Rate buydown

Paying upfront to lower your mortgage rate — permanently with discount points, or temporarily (like a 2-1 buydown) for the first year or two.

Sources

What does rate buydown mean?

A buydown reduces your interest rate in exchange for an upfront cost, often paid by the buyer, seller or builder. A permanent buydown uses discount points to cut the rate for the life of the loan. A temporary buydown, such as a 2-1, lowers the rate by two percentage points the first year and one the second before it returns to the note rate — useful when you expect income to rise, or rates to fall so you can refinance.

A 2-1 buydown in numbers

On a $400,000, 30-year loan with a 7% note rate, a 2-1 temporary buydown lowers the rate by two percentage points in year one and one percentage point in year two:

A 2-1 buydown in numbers
Year	Effective rate	Monthly principal & interest
1	5%	$2,147
2	6%	$2,398
3–30	7%	$2,661

The difference — about $9,323 in this example — is paid upfront into an escrow account, usually by the seller or builder as a sales concession.

Temporary vs. permanent buydowns

A temporary buydown eases the first years but does not change the note rate, and lenders generally qualify you at the full rate. A permanent buydown uses discount points to lower the rate for the life of the loan. If a seller is offering a credit, compare the two: the temporary version front-loads savings, while points keep paying as long as you keep the loan.

Frequently asked

What is a 2-1 buydown?

A temporary buydown that cuts your rate by two percentage points the first year and one the second, before it returns to the full note rate in year three.

It is often paid by the seller or builder and suits buyers who expect income to rise or plan to refinance.

Is a rate buydown worth it?

A permanent buydown (points) pays off if you keep the loan past the break-even month. A temporary buydown helps most when someone else pays for it, or when you expect to refinance before the rate steps back up — otherwise the upfront cost may not be recovered.