Last Updated on November 13, 2025
Buying a house is a big deal financially, especially when you factor in interest rates. But what if there was a way to obtain a lower interest rate thanks to the help of a buydown? This money-saving technique is not new, but as interest rates have risen over the last few years, the old practice is quickly becoming commonplace yet again.
Temporary buydowns
Unlike a typical buydown where the buyer pays mortgage points at the time of closing to permanently lower the interest rate, a temporary buydown offers short-term savings on interest rates and is financed by sellers. Here’s how it works: The seller offers a concession – a buydown subsidy to the buyer, which is used to temporarily buy down the interest rate.
2-1 buydown
With a 2-1 buy-down, during the first year of your mortgage, the interest rate will be 2% below market, and in the second year it will be 1% lower.
If today’s rate was 6.125%, then a 2-1 temporary buydown would result in a buyer’s first year of mortgage payments being calculated at 4.125%
Then the second year’s mortgage payment would be calculated at 5.125%, and the third year, and each year thereafter would be calculated at 6.125%.
Here is an example of a $400,000 loan with a 2-1 Temporary Buydown:
First Year Mortgage Payment would be at 4.125%
$1,938.60 per month, saving $491.84 per month, for 12 months = $5,902.08 during the first year.
Second Year Mortgage Payment would be at 5.125%
$2,177.95 per month, saving $252.49 per month, for 12 months = $3,029.88 during the second year.
Third year, and thereafter would be at 6.125%
$2,430.44 per month.
The buydown subsidy is determined by adding together the first year savings, and second year savings = $8,931.96, which is paid by the Seller at Closing. There is nothing additional due from the buyer.
3-2-1 buydown
A 3-2-1 buy-down lowers the borrower’s interest rates for three years. The first year the borrower has an interest rate that is 3% below market, 2% below market the second year and 1% below market the third year. The payment then reverts back to the original market interest rate for the remainder of the loan or until they refinance.
Permanent buydown
Discount points are used to buydown the rate permanently. It varies with changes in the market, but 2 discount points will usually bring the rate down about .75.
On a $400,000 loan, 2 points is $8,000, which is added to the buyer’s closing costs. That could bring a rate down from 6.125% to 5.375% permanently.
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