Mortgage Rate Buydown Calculator

How it works

A rate buydown lowers the interest rate on your loan, which lowers the monthly payment. The saving is just the difference between the payment at your base rate and the payment at the lower rate, both figured with the standard amortized payment formula:

With the defaults above, a $320,000 loan over 30 years costs about $2,129 a month at 7% and about $1,919 a month at 6%. So buying the rate down a full point cuts the payment by roughly $210 a month, which is around $2,525 over a year. Weigh that ongoing saving against whatever the buydown costs up front.

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A worked example: buying 7% down to 6%

A $320,000 loan at 7% would run you $2,129 a month. Pay to buy the rate down to 6% and that payment drops to $1,919, a cut of $210 every single month.

Across a full year, the buydown hands back $2,525, which is what makes paying points upfront worth a serious look. You are weighing real cash now against steady savings that show up month after month.

The size of the win depends on your term. On a 30-year loan the buydown saves $210 a month, while on a 15-year it saves $176, a gap of $34. Run your own loan amount and rates to see what the lower payment is worth.

Temporary vs permanent buydowns

• Permanent buydown. Paying points at closing lowers the rate for the whole loan. Use the points break-even calculator to see how long it takes the upfront cost to pay back.
• Temporary buydown. A 2-1 or 3-2-1 buydown lowers the rate only for the first year or two, often funded by the seller or builder, then the payment steps up to the base rate.
• Know where the money comes from. A saving funded by a seller credit is very different from one you pay for yourself, so always ask who is covering the buydown.

How a 2-1 buydown steps up

A temporary buydown lowers your rate for the first year or two, then returns it to the note rate for the rest of the loan. The most common shapes are the 2-1 and the 3-2-1, named for how many percentage points come off in each early year. The payment starts low and climbs on a set schedule, so it helps most in the early stretch when budgets are often tightest.

• 2-1 buydown. The rate is 2 points below the note rate in year one and 1 point below in year two, then settles at the full rate from year three on.
• 3-2-1 buydown. A deeper version that starts 3 points down and steps up over three years before reaching the note rate.
• Funded up front. The cost of the discount is paid at closing, often by a seller or builder, and held in an account that covers the gap each month.
• The gap is temporary. Once the buydown period ends, your payment is exactly the base-rate payment shown here, with no further steps.

You still qualify at the full rate

A crucial detail with any temporary buydown: lenders approve you based on the note rate, not the reduced starter rate. That protects you from signing up for a payment you can only afford during the discount period, and it means the low first-year payment should be treated as a bonus, not the number your budget is built around.

• Approval uses the note rate. Your debt-to-income is measured against the full payment, so the buydown does not let you borrow more.
• Budget for the step-up. Make sure the final, highest payment fits comfortably, since that is what you will pay for most of the loan.
• A soft landing, not a rescue. Temporary buydowns ease the early years; they are not a fix for a home that is simply too expensive.
• Refinancing later. If rates fall, a permanent refinance can lock in a lower payment for good, unlike a temporary buydown that expires on schedule.

Seller-funded buydown or a price cut

In a slow market, a seller may offer to fund a buydown as an incentive, and it is worth comparing that credit against simply negotiating a lower price. The two help you in different ways, and which is better depends on how long you will keep the loan, so run both offers through the payment before you assume the buydown wins.

• A buydown helps early cash flow. It lowers your payment now, which is valuable if the first year or two is when money is tightest.
• A price cut lowers everything. A smaller purchase price shrinks the loan, the interest, and the payment for the entire term, not just the opening years.
• Permanent beats temporary. A seller credit spent on a permanent buydown or a bigger down payment may outlast a temporary buydown that fades after a couple of years.
• Ask who benefits. A buydown can be easier for a seller to grant than a headline price cut, so there may be room to ask for the form that helps you most.