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Temporary Buydown Calculator
Temporary buydown

What a 2-1 buydown actually does

A temporary buydown is not a lower rate. It is a pot of money, usually the seller’s, held in an account and spent down over one, two or three years to cover part of your payment. The note rate never changes, you are underwritten on it, and the payment steps up on a schedule that is known the day you sign. This works out all of it, 1-0, 1-1, 2-1 and 3-2-1, and shows the whole payment at every stage, not just the principal and interest.

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An estimate from your figures, not advice, and not an offer of credit.

Your Scenario

Buydown structure

Each digit is how many percentage points below the note rate your payment is calculated for that year. The rate on your note is unchanged throughout.

Who is paying for it

Closing costs, prepaids, title, anything else on the seller's side of the settlement statement. It shares one cap with the buydown, which is why it belongs here rather than out of sight.

Sets the contribution cap the buydown has to fit inside, and whether a lender-paid one counts against it.

An example figure, not our pricing. Replace it with a rate you have been quoted, nothing on this page adjusts it.

The rest of the payment

A buydown touches principal and interest only. Everything below is unaffected by it, which is why your total payment falls by less than the headline.

All per month. Mortgage insurance is priced off the loan amount and the loan-to-value, never off the rate you are paying, so a buydown does not reduce it.

Payoff and the alternatives

Drives the comparison against points and against a price cut, and works out how much of the subsidy you would leave unspent.

What one point costs and how much permanent rate it buys, so the same money can be compared three ways. Both are assumptions, ask for the real ones, and remember the exchange rate is not linear.

Every Year, In Full

The payment you make in each year of the buydown, and the one you keep afterwards. This is the table the conversation should be about.

Principal & interestCovered for you Your total payment

It Does Not Help You Qualify

The most common misunderstanding about buydowns, and the most expensive one to discover late.

You are underwritten at this payment
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The Money Itself

A buydown costs exactly the sum of the payments it covers, no more, no less. It is deposited in full at closing and drawn down monthly.

What It Costs

Total deposited ,
As a share ,
Covers ,
Month one subsidy ,

What The Seller Is Paying

There is one limit on everything the seller pays toward your side of the deal, and the buydown comes out of it. Here is that limit, what the buydown takes, and what is left for everything else.

Does it fit
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If You Refinance Or Sell First

The question borrowers ask most, and the one almost nobody publishes an answer to.

You leave at ,
Subsidy spent ,
Still in the account ,

The Same Money, Three Ways

Whoever is paying for the buydown could spend the identical amount buying your rate down permanently, or taking it off the price. Which one wins depends almost entirely on how long you keep the loan, over 5 years here.

Payment, year oneCumulative benefit

What It Does Not Change

Worth stating plainly, because the marketing rarely does.

Balance at the end ,
Interest paid ,

Reference

Everything a temporary buydown is

Written from the agency guides and Regulation Z rather than from marketing. Where the agencies disagree with each other, that is said rather than smoothed over.

What it actually is

A temporary buydown is a separate written agreement and a pot of money. Somebody, nearly always the seller, sometimes the lender, occasionally a builder, deposits a lump sum into an account at closing. Each month the servicer draws from that account the difference between the payment you make and the payment the note actually requires, and the lender is made whole.

Fannie Mae states the governing principle in one sentence: “the mortgage instruments must reflect the permanent payment terms rather than the terms of the buydown plan” (Selling Guide B2-1.4-04). Your note says the note rate. It always did. Nothing about the buydown appears in it.

That is why a buydown is not a rate, and why calling a 2-1 “a 4.5% loan for a year” is a description of your cash flow rather than of your mortgage.

Reading the digits

Each digit is a number of percentage points below the note rate, and each covers twelve months. On a 6.5% note:

  • 1-0, year one billed at 5.5%, then the note rate.
  • 1-1, two years at 5.5%. One step, at month 25.
  • 2-1, 4.5%, then 5.5%, then the note rate.
  • 3-2-1, 3.5%, 4.5%, 5.5%, then the note rate.

The payment in each year is the ordinary amortising payment on the original loan amount over the original term at the reduced rate. It is not a re-amortisation, and nothing about your schedule is recalculated.

You will see “2-1-0” and “3-2-1-0” advertised. The trailing zero just means “and then the note rate”. They are the same products.

Structures that are not eligible

Fannie Mae and Freddie Mac both cap a temporary buydown at three percentage points below the note rate, three years, and, this is the one that catches people, a payment increase of no more than one percentage point in any twelve months (B2-1.4-04; Guide 4204.3).

So 2-2 and 3-3 are not eligible on agency paper, because the step from the buydown rate to the note rate is two or three points at once. They are advertised anyway. If someone offers you one, ask which investor is buying the loan.

USDA is tighter still: a maximum reduction of two points, so a 3-2-1 cannot be done at all (HB-1-3555 §11.5). Fannie separately classifies anything over two points or two years as a “significant” buydown with its own delivery treatment.

You qualify at the note rate

Every agency except VA requires it outright. Fannie Mae: loans with a temporary buydown “must be qualified without consideration of the bought-down rate” (B3-6-04). Freddie Mac: “the borrower must be qualified using monthly payments calculated at the Note Rate” (4204.3). USDA: “the mortgage loan must be underwritten at the full note rate” (§11.5).

VA is the exception, and it is an unsettled one. Its published handbook still permits underwriting at the first year's payment where there are strong indications the borrower's income will rise to meet the increases, routine cost of living increases expressly do not count. A proposed rule at 89 FR 51995 would require the note rate, and as of September 2026 it remains proposed. Plan on the note rate; treat anything else as a question for your underwriter, not an assumption.

Regulation Z arrives at the same place independently. The ability-to-repay rule at 12 CFR 1026.43(c)(5)(i) requires the payment to be computed using “the fully indexed rate or any introductory interest rate, whichever is greater”. On a fixed-rate note with the buydown held outside it, that is the note rate.

The consequence is worth being blunt about: a buydown does not increase your buying power by one dollar. It lowers the payment you make. It does not lower the payment you have to prove you can make.

Who pays for it

Almost always the seller or the builder. That is the case this calculator is built around, and it is the case you will actually be offered. The money is deposited into an escrow account at closing out of the seller’s proceeds, and the servicer draws your shortfall out of it each month.

A lender-funded buydown exists, but it is paid out of pricing rather than by the seller, and pricing will not carry more than a single year. Treat a lender-paid buydown as 1-0 only; the deeper structures are seller or builder money in every practical case.

Paying for your own is the case nobody should take, and this page does not model it. USDA prohibits it outright, “buydown funds may not come from the borrower” (§11.5), most investors who buy loans will not take it, and under Regulation Z money you pay for a buydown is a prepaid finance charge, which forces a composite APR across both rate levels and raises your disclosed finance charge (comment 17(c)(1)-4). If you have cash you want to spend on your rate, spend it on points, which lower the rate for the whole life of the loan. The comparison table further down this page does that arithmetic.

The seller has one limit, and the buydown shares it

This is the part that trips people up, so it is worth stating plainly. The seller does not have a buydown budget and a separate closing-cost budget. They have one limit on everything they pay toward your side of the deal, and the buydown comes out of it like anything else. Every dollar of buydown is a dollar that cannot go toward your closing costs.

The industry calls that limit the interested-party contribution cap, or “concessions”. Fannie Mae B3-4.1-02 says the cost of the subsidy “must be included in the IPC calculation”; FHA Handbook 4000.1 names “permanent and temporary interest rate buydowns” inside the 6%; VA counts escrowed buydown funds as a concession against the 4%.

Going over is not simply refused. The excess is treated as a reduction in the sale price for underwriting, which raises your loan-to-value on a smaller number and can put the loan outside what the appraisal supports.

Conventional caps run on loan-to-value: 9% at 75% or less, 6% from 75.01% to 90%, 3% above 90%, and 2% on an investment property. A 3-2-1 costs somewhere around 4.5% of the loan, which is why it simply does not fit on a low-down-payment conventional purchase.

One distinction is worth money: on a conventional loan, a lender that is not affiliated with an interested party is not making a contribution at all, so a genuine lender-paid buydown sits outside the cap. On FHA it does not, because mortgagees are interested parties there.

Where the money sits

The agencies genuinely disagree, and anyone who tells you there is one answer has not read them all.

Fannie Mae requires the funds in a servicer-held custodial account, fully funded before the loan is delivered, never commingled with the lender’s corporate funds (B2-1.4-04). VA’s published handbook requires the opposite, an independent third-party escrow agent, “beyond the reach of prospective creditors of the builder, seller, lender, and the borrower”. USDA requires an escrow with a federally or state-supervised institution.

Whether the account earns interest, and whose it is if it does, is a question of state law and of the buydown agreement. No agency answers it.

If you leave early

On a Fannie Mae loan the servicer must “reduce the payoff amount by the amount of any remaining buydown funds” (Servicing Guide F-1-09). Note the precision: it reduces the payoff, not the balance, so the unspent subsidy does not reduce the interest accruing before you leave.

VA is categorical and the most protective: on prepayment or foreclosure the funds “must be credited against the veteran’s indebtedness” and “may not revert to the party that established the escrow”.

But Fannie’s Selling Guide also permits the agreement to send unused funds back “to either the borrower or the lender as specified in the buydown agreement”. So: usually credited to your payoff, occasionally not yours at all. Read the buydown agreement before you assume. Do not expect a cheque.

It is worthless if you fall behind

This is the least advertised fact about buydowns and the one that matters when things go wrong. Fannie Mae is explicit that buydown funds “cannot be used to pay past-due payments” (B2-1.4-04), and from November 2025 servicers “must not apply interest rate buydown funds to reduce the delinquency amount in connection with a reinstatement, repayment plan, or payment deferral” unless the agreement says otherwise (Servicing Announcement SVC-2025-05).

On a deed-in-lieu the borrower must waive reimbursement of the funds entirely. The cushion disappears at exactly the moment it looks most useful.

What it does not change

Your amortisation. The lender receives the full note payment every month. Your balance falls on precisely the schedule it would have without a buydown, and you pay precisely the same interest. You are not building equity faster.

Your mortgage insurance. Priced off the loan amount and the loan-to-value, never off the rate you are paying.

Your escrow. Taxes and insurance are analysed on their own cycle under RESPA. They can, and eventually will, go up in the same month your buydown steps up. The year two and year three figures on this page assume escrow holds still, which it will not.

Against permanent points

A temporary buydown is a fixed pot, spent entirely inside one, two or three years, worth nothing afterwards. Discount points are a smaller monthly saving that never stops, and they also amortise the loan slightly faster because more of a constant payment goes to principal.

So the crossover depends on three things: the size of the pot (roughly 0.8% of the loan for a 1-0, 2.3% for a 2-1, 4.5% for a 3-2-1); the exchange rate on points that day; and how long you keep the loan, which means until you sell or refinance, not until the term ends.

For a typical 2-1 against points, the crossover tends to land somewhere in the four to seven year band. Keep the loan less than that and the buydown wins; keep it longer and points win, by a widening margin. Note that the points exchange rate is not linear, the first point buys more rate than the fourth, so a large 3-2-1 budget spent on points has a worse marginal return than a small one does.

Against a price reduction

The seller’s money is fungible. The same amount could come off the purchase price, which reduces the loan permanently, reduces the interest, reduces the mortgage insurance base, and in many places reduces the assessed value the property is taxed on.

What it does not do is help much with cash flow now: a 2.3% price cut on a $520,000 loan saves roughly $75 a month, where the 2-1 buydown built from the same money saves around $500 in year one.

Short horizon or a tight first year, take the buydown. Long horizon, take the price cut. And a price cut has one more property nobody mentions: it has to appraise, and a large concession sometimes signals a price the appraiser will not support.

Why there is no APR on this page

Because on the ordinary structure there is nothing to add. A seller-paid buydown that is kept out of the note does not change the finance charge or the annual percentage rate at all, Regulation Z’s commentary at 17(c)(1)-3 says the disclosures “must not reflect the seller buydown in any way” where the reduced rate is not in the credit contract. Your Loan Estimate will show the note rate, the note payment, and the seller’s money as a credit.

A buydown you pay for yourself is the opposite: a prepaid finance charge producing a composite APR across both rate levels (comment 17(c)(1)-4). And a buydown written into the note is a step-rate loan with its own disclosures entirely.

Three different answers depending on structure. Quoting one number here would be inventing it. Your Loan Estimate carries the real one.

When not to do one

If you cannot afford the final payment. The step-up is not a forecast, it is a schedule. If year three is unaffordable, the loan is unaffordable and the buydown has only delayed finding out.

If it is your own money and you are staying put. Points or a price cut almost certainly beat it.

If it is being sold to you as a bridge to a refinance. Rates may not fall. Your credit, income, or the property’s value may not support a refinance when you need one. A buydown has to make sense if you never refinance at all.

If the seller would otherwise cut the price and you are staying ten years. You are trading a permanent benefit for a temporary one.

Questions

What people actually ask

What is a 2-1 buydown?

A seller, builder or lender deposits money at closing that covers part of your mortgage payment for two years. Your payment in year one is calculated as though your rate were two percentage points lower, in year two one point lower, and from year three you pay the full note payment. Your actual interest rate never changes, only who pays part of the bill.

Does a buydown lower my interest rate?

No. The rate on your note is the note rate for the whole term. A temporary buydown changes the size of the cheque you write for one, two or three years by having somebody else cover the difference. That is why your loan amortises exactly as it would without one, and why you pay exactly the same interest.

Does a buydown help me qualify for more house?

No, and this is the most important thing on this page. Fannie Mae, Freddie Mac and USDA all require you to be underwritten at the full note rate, and Regulation Z’s ability-to-repay rule requires the same. Your debt-to-income ratio is calculated on the payment you will make in year three, not the one you will make in year one.

How much does a 2-1 buydown cost?

Exactly the sum of the payments it covers, twelve months of the year-one subsidy plus twelve months of the year-two subsidy. On a typical 30-year loan at current rates that is roughly 2.2% to 2.5% of the loan amount. A 1-0 runs around 0.8%, a 3-2-1 around 4.3% to 4.7%. There is no separate fee built into the agency structure, though a lender may charge to administer it.

Who pays for a temporary buydown?

Almost always the seller, or the builder on new construction. A lender can fund one out of pricing, but pricing will not carry more than a single year, so treat a lender-paid buydown as 1-0 only. You paying for your own is a case worth avoiding: USDA forbids it, most investors will not buy a loan with one, and under Regulation Z your money becomes a prepaid finance charge that raises your disclosed APR. If you have cash to spend on your rate, points are the better use of it.

Does the buydown use up the seller’s closing-cost credit?

Yes. That is the single most misunderstood thing about them. The seller has one limit on everything they pay toward your side of the deal, and the buydown comes out of it. If the seller has agreed to, say, $15,000 and a 2-1 buydown costs $9,800, there is $5,200 left for closing costs, not $15,000. The panel above writes that arithmetic out for your numbers.

What happens to the money if I refinance during the buydown?

Normally it is credited to your payoff, so you do not lose it, Fannie Mae requires the servicer to reduce the payoff amount by the remaining funds, and on a VA loan the money can never go back to whoever put it up. But Fannie’s guide also allows the buydown agreement to return unused funds to the lender instead. Read the agreement. Do not expect a refund cheque.

Is a buydown better than paying points?

It depends entirely on how long you keep the loan. A buydown spends a fixed pot inside two or three years; points buy a smaller saving that lasts as long as the loan does. The crossover for a typical 2-1 against the same money in points usually falls somewhere between four and seven years. If the money is the seller’s rather than yours, that tilts toward the buydown, because you have nothing at risk in the part that goes unused.

Can I get a 2-2 or a 3-3 buydown?

Not on a conventional, FHA, VA or USDA loan. Fannie Mae and Freddie Mac both limit the payment increase to one percentage point in any twelve months, and a 2-2 steps up by two points at once. They are advertised anyway. If you are offered one, ask who is buying the loan.

Does my whole payment drop by 2%?

No. The subsidy applies to principal and interest only. Property taxes, homeowners insurance, mortgage insurance and HOA dues are untouched, so if those are a third of your payment, your total outlay falls by considerably less than the headline suggests. That is why this page shows the full payment at every stage.

Will I get a warning before my payment goes up?

On a Fannie Mae loan, yes, since November 2025 servicers must notify you 90 days before the payment changes. On other loans there may be no requirement at all. Regulation Z’s adjustable-rate change notice does not apply, because your rate is not adjusting. Put the step-up dates in your own calendar.

Does a buydown affect my APR?

On the ordinary structure, no. A seller-paid buydown that is not written into the note does not change the finance charge or the APR, and your Loan Estimate will show the note rate throughout. If you pay for the buydown yourself it becomes a prepaid finance charge and produces a composite APR across both rate levels. If the reduced rate is written into the note, it is a step-rate loan with different disclosures again.

Can I use a buydown on a refinance?

Sometimes, but the economics rarely work, because there is no seller to pay for it. Freddie Mac specifically prohibits a lender-funded buydown on a no-cash-out refinance where the credit comes from taking a higher interest rate. On a purchase the money comes from someone else; on a refinance it usually comes from you.

Does the buydown money reduce my loan amount?

No. It sits in a separate account and is spent on payments. Fannie Mae is explicit that buydown funds “cannot be used to reduce the mortgage amount for purposes of determining the LTV ratio”. Your loan, your loan-to-value and your mortgage insurance are all calculated as if the buydown did not exist.

What if I lose my job in year two?

The buydown does not help. Fannie Mae prohibits using buydown funds to cover past-due payments, and servicers may not apply them to a reinstatement or repayment plan unless the agreement says otherwise. If you take a deed-in-lieu you have to waive the remaining funds entirely. Treat the subsidy as cash flow, never as a safety net.

Important disclosures

Taylor Weiner, mortgage loan originator, NMLS #263090  ·  Lower, LLC, NMLS #1124061  ·  5950 Symphony Woods Road, Suite 312, Columbia, MD 21044  ·  (714) 658-4912  ·  tweiner@twteam.com  ·  Verify licensing at nmlsconsumeraccess.org. Licensed to originate residential mortgage loans in California.

Not a government agency. The TW Team at Lower is not affiliated with, acting on behalf of, or endorsed by HUD, the FHA, the VA, the USDA, the FHFA, Fannie Mae, Freddie Mac or any other government agency. This page is not a government publication and has not been reviewed or approved by HUD, by the FHA, by the VA, by the USDA or by any other government agency. FHA loans are insured by the Federal Housing Administration and VA loans are guaranteed by the Department of Veterans Affairs; both are originated by approved lenders, not by the agencies themselves.

This calculator is an educational estimate based on figures you enter. It is not a rate quote, an offer of credit, or a commitment to lend. No rate shown on this page is offered or available; every rate field opens on an example figure you are expected to replace, and nothing on the page adjusts one. Your actual rate, payment, costs and eligibility are determined by full underwriting and by the market on the day you lock, and are disclosed to you on your Loan Estimate and Closing Disclosure.

A temporary buydown is a separate written agreement, and its terms govern. That includes what happens to unused funds if you sell, refinance or default. Nothing on this page overrides the agreement you sign.

Where the rules on this page come from

Structure, escrow and disposition of funds: Fannie Mae Selling Guide B2-1.4-04 and Servicing Guide F-1-09 and A4-1-02; Fannie Mae Servicing Announcement SVC-2025-05; Freddie Mac Single-Family Seller/Servicer Guide 4204.3; USDA HB-1-3555 §11.5; VA Lenders Handbook M26-7 Chapter 7; Ginnie Mae MBS Guide Chapter 25.

Qualifying rate: Fannie Mae B3-6-04; Freddie Mac 4204.3; USDA §11.5; 12 CFR 1026.43(c)(5)(i) and (e)(2)(iv).

Interested party contributions: Fannie Mae B3-4.1-02; FHA Handbook 4000.1 II.A.4.d.iii(G) and II.A.5.c.iii(G); VA concession rules in M26-7 Chapter 8.

Disclosure treatment: 12 CFR 1026.4(c)(5); Official Interpretations to 1026.17(c)(1), comments 3, 4 and 5; 12 CFR 1026.37 and 1026.38.

Two things on this page are unsettled and are described as such rather than resolved. VA’s published handbook still permits underwriting a buydown at the first year’s payment in limited circumstances; a proposed rule at 89 FR 51995 would require the note rate, and as of publication it remains proposed. And the agencies genuinely differ on where buydown funds must be held. Where a rule is investor-specific, your loan’s investor governs.

Scope and limits of this calculator

This page models a fixed-rate loan with a level-payment temporary buydown on a one-unit property. It does not model adjustable rates, step-rate notes where the reduced rate is written into the note itself, graduated payment mortgages, escrow changes over time, or the interaction between a buydown step-up and an annual escrow analysis, though it warns that the two can land in the same month.

It models a buydown funded by the seller, the builder or the lender. It does not model a borrower-funded buydown, which USDA prohibits and which is disclosed differently under Regulation Z.

No annual percentage rate is shown, deliberately. On the ordinary structure a third-party buydown kept out of the note does not affect the APR at all; a buydown written into the note is a step-rate loan disclosed differently again. Your Loan Estimate carries the figure that governs.

The points exchange rate used in the comparison is an assumption you enter, not a quote, and the real one moves daily and is not linear.

Agency guidance current as of September 2026. Loan limits, premium tables and agency guidelines change; the guidance in force when your file is underwritten governs.

⌂ Equal Housing Opportunity. Lower, LLC is an Equal Housing Lender. We do business in accordance with the Federal Fair Housing Act and the Equal Credit Opportunity Act.