A rate buydown temporarily or permanently lowers your interest rate, usually funded by a lump sum paid at closing, either by you or by the seller as part of the purchase negotiation. The most common version, a 2-1 buydown, lowers your rate by 2 percent in year one and 1 percent in year two before settling at the permanent rate in year three. It can meaningfully ease your early payments, especially when a seller is willing to fund it.
How a 2-1 buydown actually works
On a loan with a permanent rate of 7 percent, a 2-1 buydown brings your effective rate to 5 percent in year one and 6 percent in year two, before returning to the full 7 percent in year three and beyond. The cost of funding that reduction is paid upfront at closing, either by the seller, the builder, or you directly.
Temporary versus permanent buydowns
A temporary buydown, like the 2-1 structure above, reduces your rate for a set period before returning to the permanent rate. A permanent buydown, more commonly called paying discount points, reduces your rate for the entire life of the loan in exchange for an upfront cost. The two solve different problems: temporary buydowns ease the early years, while permanent buydowns lower your cost for as long as you hold the loan.
Seller-funded buydowns are worth asking about on nearly every purchase, particularly in a market where sellers have room to negotiate. Getting a lower payment in year one without paying for it yourself is one of the better outcomes available in a buyer's market.
When a temporary buydown makes sense
- You expect your income to grow over the next two years, easing into the full payment naturally
- A seller or builder is willing to fund the cost as part of the deal
- You want lower payments during a specific short-term stretch, such as a home renovation period
Common mistakes with rate buydowns
- Assuming the lower rate lasts forever. A temporary buydown reverts to the full rate on a set schedule, and budgeting as if the reduced payment is permanent can create a surprise later.
- Not asking the seller to fund it. Many buyers pay for their own buydown without ever negotiating for the seller to cover it instead.
- Confusing a temporary buydown with a permanent rate reduction. These are different tools solving different problems, and it is worth understanding which one you are actually being offered.
Frequently asked questions
It can be paid by the seller, the builder, or the buyer, and negotiating for the seller or builder to cover it is common practice, particularly in a market that favors buyers.
Yes, a temporary buydown follows a predetermined schedule and returns to the permanent note rate at the end of that period, which is fixed from the start and known before you close.
No, discount points permanently lower your rate for the life of the loan. A temporary buydown lowers your rate only for a set introductory period before returning to the permanent rate.
Curious whether a buydown fits your purchase, or whether you should ask the seller to fund one? Send me the details and I will walk you through the real numbers.
This article is general education, not a commitment to lend or an offer of credit. Program availability, terms, rates, and qualification guidelines vary by lender and are subject to change; all loans are subject to underwriting and final approval. Market figures are approximate and change over time. For guidance specific to your situation, reach out directly. Garrett Potz, NMLS #631592 · Affinity Home Lending, Company NMLS #1181151 · Equal Housing Lender.