Temporary Rate Buydown
Temporary Buydown — Lower Payments Early in Your Loan
Use a 3-2-1, 2-1, or 1-0 buydown to temporarily reduce your interest rate and monthly payment during the first years of your mortgage—great for easing into ownership or matching income growth.
What is a Temporary Buydown?
A temporary buydown lowers your **effective interest rate** for an initial period. The interest difference is prepaid into an escrow account (usually by the **seller**, **builder**, or **lender** credit). Each month, those funds “subsidize” your payment so you pay as if your rate were lower.
Common structures
- 3-2-1 Year 1: −3%, Year 2: −2%, Year 3: −1%.
- 2-1 Year 1: −2%, Year 2: −1%.
- 1-0 Year 1: −1%.
Who can fund it?
- Seller concessions (popular for negotiations).
- Builder incentives on new construction.
- Lender credits (program-dependent).
Example (2-1 Buydown)
Assume $450,000 loan, 30-yr fixed, **note rate 6.50%**.
| Year 1 (note −2% ➝ 4.50%) | Monthly payment behaves as if 4.50% (savings subsidized from buydown funds). |
| Year 2 (note −1% ➝ 5.50%) | Payment behaves as if 5.50%. |
| Year 3+ (note rate ➝ 6.50%) | Payment equals standard 6.50% payment. |
Note: Exact savings and required subsidy depend on loan amount, rate, program, and the buydown structure selected.
Benefits & Considerations
- Lower initial payments to ease move-in costs.
- Useful if income will rise (promotions, new role, bonuses).
- Negotiation tool—ask seller to fund as a concession.
- The **note rate does not change**—only the payment is subsidized early on.
- Subsidy must be fully funded at closing and follows investor rules.
- If you refi early, unused funds are typically applied per guidelines.
FAQs
Is a buydown the same as discount points?
No. Discount points permanently lower the **note rate**. A temporary buydown keeps the note rate the same and uses prepaid funds to reduce the **effective payment** for a set period.
Who can pay for the buydown?
Often the **seller** or **builder** funds it via concessions; some programs allow **lender** credits. Concession limits and program rules apply.
Can I combine a buydown with other programs?
Sometimes, yes—subject to investor/agency guidelines (e.g., FHA/VA/Conventional) and concession limits. We’ll confirm eligibility.
What happens if I refinance before the buydown period ends?
Per guidelines, any remaining subsidy is typically applied as a principal reduction or handled at payoff—details vary by investor/servicer.
Lower payments when it matters most.
Explore a temporary buydown designed around your timeline and budget.