Temporary buydowns

A lower payment for the first few years.

With a temporary buydown, the seller (or builder) prepays part of your interest so your rate starts lower and steps up each year to your full rate. Here's how the 1/0, 2/1 and 3/2/1 compare — and what they cost the seller.

How it works

Three common structures.

Example: $450,000 price, 20% down ($360,000 loan), 30-year fixed at 7.138%. Full principal & interest = $2,429/mo.

1/0 buydown

1% offfor 1 year
  • Year 1 · 6.138%$2,190 (−$238)
  • Years 2–30 · 7.138%$2,429
  • Seller cost≈ $2,857

2/1 buydown

2% → 1%for 2 years
  • Year 1 · 5.138%$1,963 (−$466)
  • Year 2 · 6.138%$2,190 (−$238)
  • Years 3–30 · 7.138%$2,429
  • Seller cost≈ $8,444

3/2/1 buydown

3% → 2% → 1%for 3 years
  • Year 1 · 4.138%$1,747 (−$681)
  • Year 2 · 5.138%$1,963 (−$466)
  • Year 3 · 6.138%$2,190 (−$238)
  • Years 4–30 · 7.138%$2,429
  • Seller cost≈ $16,617

Principal & interest only. The seller's cost equals the total payment savings over the buydown period, deposited into an escrow account at closing.

Calculator

Run your own numbers.

$
%
%
YearRateMonthly P&IMonthly savingsYearly savings
Seller-paid cost
$0
0% of price
Loan amount$0
Full P&I payment$0
Year 1 payment$0
Year 1 monthly savings$0
Total buyer savings$0

Principal & interest only — excludes taxes, insurance, PMI and HOA.

Good to know

Quick answers.

Who pays for it?
Usually the seller or builder, as a seller concession negotiated in the offer. The money is held in an escrow account and applied to your payment each month during the buydown years. Concessions count toward your loan program's seller-contribution limit.
Do I qualify at the lower rate?
No — you qualify at the full note rate. The buydown makes the early years easier on your budget, but your approval is based on the full payment.
What if I refinance or sell early?
Unused buydown funds aren't lost. Depending on the program, they're typically applied to your loan balance at payoff.
Is a buydown better than a price cut?
Often, for monthly cash flow: a few thousand dollars toward a buydown usually lowers the early payment far more than the same amount off the price. A permanent rate buydown (points) is another option. Read more in seller-paid rate buydowns in Wisconsin, or ask me to run your side-by-side.

Writing an offer?

Let's structure the right concession.

Send me the price and terms and I'll show you exactly what a buydown would do for your payment — usually the same business day.

Book a 15-minute callSend Ethan a messageStart your application