2-1 Buydown vs. Price Reduction Calculator
Should the seller offer a temporary buydown or a lower price? See what a 2-1, 1-0 or 3-2-1 buydown does to the payment, side by side with the same dollars taken off the price.
Buydown or a lower price?
See what a 2-1, 1-0 or 3-2-1 buydown does to the payment year by year, and compare it side by side with putting the same seller dollars toward a lower price.
Not every loan program allows every buydown type. These are estimates from the numbers you enter, not a loan offer or a rate quote. Your actual rate, payment and costs depend on your credit, the loan program and the property.
How a Temporary Buydown Works
Money is set aside at closing, usually by the seller or builder, to cover part of your payment early on. With a 2-1 buydown, your rate is 2% below your full rate in year one and 1% below it in year two. From year three on, you pay the full rate for the rest of the loan.
Buydown or price reduction?
For the same cost to the seller, a buydown lowers the payment more in the first year or two. A lower price gives a smaller payment for the whole loan, a lower balance and often lower property taxes. Buyers who expect their income to grow, or who plan to refinance, often like the buydown. Buyers planning to stay put usually come out ahead with the lower price.
Things to know
- On most loans you qualify at the full rate, not the reduced one
- Ask what happens to unused buydown money if you sell or refinance early; on many loans it goes toward your balance
- Not every loan program or property type allows every buydown type
- Seller concession limits apply
Want a lower rate for the whole loan instead? See the mortgage points calculator.
Temporary Buydown Questions
Who pays for a temporary buydown?
Usually the seller or builder, as a concession. A buyer can pay for it too.
Is a buydown better than a lower price?
It depends on what you need. A buydown helps the payment in the first years, while a lower price helps for the whole loan and lowers the balance. Turn on the side-by-side comparison in the calculator to see both with the same seller dollars, and Peter can run real numbers.
Does every loan allow a 2-1 buydown?
No. Many purchase loans allow one, but rules vary by program and property type. Ask Peter what applies to yours.
What happens when the buydown ends?
Your payment goes up to the full-rate payment, which is the last row in the calculator. Plan your budget around that number.