Short answer: a buydown lowers your mortgage rate — temporarily (a 2-1 buydown cuts the rate for two years, then it resets) or permanently (discount points buy the rate down for the life of the loan). Enter your loan amount, note rate, and buydown terms above to see the monthly savings and the breakeven point where the upfront cost pays for itself.
How to use this calculator
- Loan amount — the mortgage principal you’re financing.
- Note rate — the full interest rate on the loan before any buydown.
- Buydown type — choose a temporary buydown (2-1, 1-0, or 3-2-1) or a permanent buydown via discount points.
- Buydown cost — what you (or the seller/builder) pay upfront for the rate reduction: either the lump sum funding a temporary buydown or the price of the discount points.
The calculator shows your reduced payment in each year, total savings over time, and — for permanent buydowns — the month your cumulative savings overtake the upfront cost. Everything runs in your browser — your numbers never leave your device.
What is a mortgage rate buydown?
A buydown is money paid upfront to reduce the interest rate on a mortgage. There are two fundamentally different kinds:
Temporary buydowns reduce the rate for the first year or two, then the rate steps back up to the full note rate. The most common structures:
- 2-1 buydown: rate is 2 percentage points below the note rate in year 1, 1 point below in year 2, then full rate from year 3 onward.
- 1-0 buydown: rate is 1 point below in year 1, then full rate from year 2.
- 3-2-1 buydown: 3 points below in year 1, 2 in year 2, 1 in year 3, then full rate. Less common, usually seen with builder financing.
Permanent buydowns (discount points) reduce the rate for the entire life of the loan. One “point” equals 1% of the loan amount paid at closing; each point typically buys the rate down by about 0.25 percentage points, though the exact exchange rate varies by lender and market conditions.
The key difference: a temporary buydown is a short-term payment subsidy that expires; discount points are a permanent repricing of the loan that only pays off if you keep the mortgage long enough.
How does a temporary buydown actually work?
A common misconception is that the loan itself changes. It doesn’t. Here’s the mechanics of a 2-1 buydown:
- Your mortgage note carries the full rate (say 7.5%) for the entire 30-year term, and the loan amortizes at that rate.
- At closing, a lump sum — funded by the seller, builder, or lender as a concession — goes into a buydown escrow account.
- In year 1, you make payments as if the rate were 5.5%; the escrow account covers the difference between your reduced payment and the full 7.5% payment. In year 2, you pay at 6.5% with a smaller subsidy. From year 3, you pay the full payment yourself.
- If you refinance or sell before the buydown period ends, the unused escrow balance is typically credited back — applied to reduce your loan payoff amount.
This structure matters for qualification: lenders generally qualify you at the full note rate (or the year-2 rate, depending on agency rules), not the subsidized year-1 payment — so a buydown doesn’t let you borrow more than you could otherwise afford.
How the math works
Temporary buydown savings are straightforward: for each buydown year, savings = (full payment − reduced payment) × 12. The reduced payment is computed with the standard amortization formula at the buydown-year rate.
Permanent buydown breakeven compares the upfront cost against the monthly savings:
- Monthly savings = payment at note rate − payment at bought-down rate
- Breakeven (months) = upfront cost ÷ monthly savings
If you sell or refinance before the breakeven month, the points lost you money. If you keep the loan well past it, they saved you money. Note that breakeven ignores the time value of money — a dollar saved in year 8 is worth less than a dollar paid at closing — so treat the breakeven as slightly optimistic.
A worked example: 2-1 buydown
Take a $400,000 loan at a 7.5% note rate, 30-year term, with a 2-1 buydown (5.5% in year 1, 6.5% in year 2):
- Full payment at 7.5%: ≈ $2,796.86/month
- Year 1 payment at 5.5%: ≈ $2,271.16/month — savings of $525.70/month, or $6,308.42 for the year
- Year 2 payment at 6.5%: ≈ $2,528.27/month — savings of $268.59/month, or $3,223.03 for the year
- Total two-year savings: ≈ $9,531.46
- From year 3 onward: $2,796.86/month for the remaining 28 years.
The buydown doesn’t reduce what you owe — it subsidizes your early payments. It’s most valuable to buyers who expect their income to rise (making the later full payments comfortable) or who expect to refinance if rates fall.
A worked example: permanent buydown (discount points)
Same $400,000 loan at 7.5%, but instead you pay 2 discount points ($8,000) at closing to reduce the rate permanently to 7.0%:
- Payment at 7.5%: ≈ $2,796.86/month
- Payment at 7.0%: ≈ $2,661.21/month
- Monthly savings: ≈ $135.65
- Breakeven: $8,000 ÷ $135.65 ≈ 59 months — just under 5 years
Verdict: if you keep this mortgage for 7–10+ years, the points are a clear win (about $1,628/year in savings after breakeven). If you sell or refinance in 3 years, you paid $8,000 to save roughly $4,880 — a $3,120 loss. The decision hinges almost entirely on how long you’ll hold the loan.
Who pays for buydowns?
Temporary buydowns are typically funded by someone other than the buyer — the home seller, the builder, or the lender — as a concession or incentive. This is by design: agency guidelines generally don’t allow borrowers to fund their own temporary buydown, since the point is payment relief the borrower couldn’t otherwise get. In practice, 2-1 buydowns became widespread when builders used them to move inventory without cutting list prices: the buydown costs the builder a few thousand dollars but lets the buyer advertise a much lower year-1 payment.
Discount points can be paid by the buyer, seller, or split. Buyers most often pay their own points at closing. Sellers can also contribute points as part of negotiated concessions, subject to limits on interested-party contributions.
When comparing offers, always ask: “What is the buydown costing, who is paying for it, and what happens to unused funds if I refinance early?” A “free” 2-1 buydown from a builder may be baked into a higher purchase price — compare the all-in cost against a price reduction instead.
Temporary buydown vs. discount points: which is better?
| Temporary (2-1) buydown | Discount points | |
|---|---|---|
| Rate effect | Lower payments for 1–2 years only | Lower rate for the life of the loan |
| Typical cost | Lump sum into escrow (often seller/builder-paid) | 1% of loan per point (often buyer-paid) |
| Breakeven | Immediate — savings start month one | 4–7 years is typical |
| Best for | Rising income, likely refinance, short horizon | Long-term holders, “forever home” buyers |
| If you refinance early | Unused escrow usually credited back | Points are sunk — money lost |
| Rate risk | None — note rate is fixed regardless | None — rate is permanently lower |
A useful way to think about it: the temporary buydown is a cash-flow tool for the early years; points are an interest-rate bet that only wins if you hold the loan past breakeven.
What this calculator doesn’t do
- It models principal and interest only — taxes, insurance, HOA, and mortgage insurance aren’t included.
- Buydown pricing is illustrative: the actual rate reduction per point and the cost of a temporary buydown vary by lender, loan program, and market day. Get a written quote.
- It doesn’t account for the time value of money in breakeven math, or for the alternative of investing the buydown cost instead.
- It assumes fixed rates; adjustable-rate mortgages have their own buydown-like structures (teaser rates) with different risks.
- It is an educational planning tool, not mortgage or financial advice.
Frequently asked questions
What is a 2-1 buydown?
A 2-1 buydown temporarily reduces your mortgage rate: 2 percentage points below the note rate in the first year, 1 point below in the second year, then the full note rate from year three onward. The difference is funded upfront into an escrow account, typically by the seller or builder. On a $400,000 loan at 7.5%, a 2-1 buydown saves roughly $9,531 over the first two years.
Is a mortgage buydown worth it?
A temporary buydown is worth it when someone else pays for it and the early savings help your cash flow — there’s little downside if the buydown is genuinely funded by the seller or builder. Discount points are worth it only if you keep the loan past the breakeven point (often 4–7 years). Run both scenarios in the calculator above with your actual quotes.
How do I calculate the breakeven on discount points?
Divide the upfront cost of the points by the monthly payment savings: breakeven months = cost ÷ monthly savings. For example, $8,000 in points saving $135.65/month breaks even in about 59 months. Sell or refinance before then and the points cost you money.
Who typically pays for a rate buydown?
Temporary buydowns are usually paid by the seller, builder, or lender as a concession — borrowers generally can’t fund their own under agency rules. Discount points are most often paid by the buyer at closing, though sellers can contribute them as part of negotiated concessions.
What happens to a buydown if I refinance early?
With a temporary buydown, any unused escrow funds are typically applied to reduce your loan balance at payoff — you don’t lose the remaining subsidy. With discount points, the upfront cost is sunk; refinancing before breakeven means the points were a net loss.
Does a buydown help me qualify for a larger loan?
Generally no. Lenders qualify you based on the full note rate (agency rules vary on whether year-2 buydown rates may be used), not the subsidized first-year payment. A buydown eases your early cash flow; it doesn’t increase your borrowing power.
Are discount points tax-deductible?
Points paid on a mortgage for your primary residence are generally deductible as mortgage interest in the year paid, subject to IRS rules; points on a refinance are usually deducted ratably over the loan term. Tax law changes, so confirm current treatment with a tax professional or IRS guidance.
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- Credit Card Payoff Calculator — compare high-interest debt payoff strategies
Methodology reviewed September 2026. Buydown pricing and program rules vary by lender — always compare written quotes. This page is educational content, not mortgage or financial advice.