Temporary Rate Buydown Explained

Introduction

A temporary rate buydown lowers your interest rate for the first year or two, then steps up to the full note rate. The most common is the 2-1 buydown: 2% below the note rate in year 1, 1% below in year 2, then the full rate. See Mortgage Rate Buydown Explained and What Are Mortgage Points.

Frequently Asked Questions

What is a temporary rate buydown?

A temporary buydown lowers your interest rate for the first year or two, then it steps up to the full note rate. The most common is the 2-1 buydown: 2% below note rate in year 1, 1% below in year 2, then full rate.

How does a 2-1 buydown work?

You (or the seller) fund an escrow account at closing. The lender uses it to subsidize your payments: year 1 at 2% below note rate, year 2 at 1% below, year 3+ at full rate.

Who typically pays for a temporary buydown?

The seller or builder often pays as a concession. Buyers can also pay. The cost is the present value of the payment reduction over the buydown period.

When does a temporary buydown make sense?

It can help when the buyer expects income to rise (e.g., new graduate, commission-based) or when the seller wants to offer a concession. The buyer must qualify at the full note rate.