Temporary Buydown Calculator

Understanding Temporary Mortgage Buydowns

A temporary mortgage buydown lowers a homebuyer’s principal and interest payment for the first one, two, or three years of a mortgage before the payment returns to the amount based on the full note rate.

Temporary buydowns are commonly funded with seller concessions, builder credits, or other eligible third-party contributions. The funds are established at closing and used to cover the difference between the temporarily reduced payment and the payment based on the full mortgage rate.

Use the temporary mortgage buydown calculator to:

• Compare 3-2-1, 2-1, 1-1, and 1-0 temporary buydowns
• Estimate your principal and interest payment during each buydown year
• See your estimated monthly and annual savings
• Calculate the total funds required for the buydown
• Compare a temporary buydown with a permanent mortgage rate reduction
• Evaluate how seller concessions could reduce your mortgage payment after closing

If you are still determining the purchase price your budget may support, our home affordability calculator can help estimate your buying power.

How Does a Temporary Mortgage Buydown Work?

A temporary mortgage buydown uses funds contributed at closing to subsidize part of your principal and interest payment for a predetermined period.

For example, with a 2-1 buydown and a 6.5% note rate, your payment would initially be calculated as though the rate were 4.5% during the first year and 5.5% during the second year. Beginning in year three, you make the full principal and interest payment based on the 6.5% note rate.

You are still obtaining the mortgage at the full note rate. The temporary buydown funds cover the difference between your reduced payment and the payment required by the mortgage.

How to Use the Temporary Buydown Calculator

Enter your loan information to see how different temporary buydown options could affect your monthly payment.

Buydown Type

Select the temporary buydown you want to calculate.

3-2-1 Buydown: Your payment is calculated using a rate 3 percentage points below the note rate in year one, 2 percentage points below in year two, and 1 percentage point below in year three. The full payment begins in year four.

2-1 Buydown: Your payment is calculated using a rate 2 percentage points below the note rate in year one and 1 percentage point below in year two. The full payment begins in year three.

1-1 Buydown: Your payment receives the same temporary rate reduction during the first two years before returning to the full note rate.

1-0 Buydown: Your payment is calculated using a rate 1 percentage point below the note rate during the first year. The full payment begins in year two.

Loan Amount

Enter the amount you expect to finance rather than the purchase price of the home.

Because the cost of a temporary buydown depends on the difference between the reduced payments and the full principal and interest payment, larger loan amounts generally require more buydown funds.

Interest Rate

Enter the full mortgage rate before the temporary buydown is applied.

For example, if your mortgage rate is 6.5% and you select a 3-2-1 buydown, the calculator estimates payments using 3.5% in year one, 4.5% in year two, 5.5% in year three, and 6.5% thereafter.

Loan Term

Choose the amortization period for the mortgage. A 30-year loan term is commonly used with temporary buydowns.

What Does the Temporary Buydown Calculator Show?

The calculator breaks down your payment during each year of the buydown period.

Temporary Interest Rate

The calculator shows the reduced rate used to calculate your principal and interest payment during each buydown year.

Monthly Payment

This is the estimated principal and interest payment after the temporary buydown is applied.

Property taxes, homeowners insurance, mortgage insurance, HOA dues, and other housing expenses are not included.

Monthly and Annual Savings

Your reduced payment is compared with the principal and interest payment at the full note rate so you can see the estimated savings during each year.

Total Buydown Funds Required

The calculator adds the monthly payment differences throughout the buydown period to estimate how much must be contributed at closing.

Those funds may be provided through eligible seller, builder, lender, or other interested party contributions, subject to the requirements of the loan program.

How Can Seller Concessions Pay for a Temporary Buydown?

Seller concessions can be one of the most valuable ways to fund a temporary mortgage buydown.

Instead of using a negotiated credit entirely for closing costs, a buyer may be able to apply part of the concession toward a temporary reduction in the monthly mortgage payment.

This is also why buyers should evaluate seller concessions vs. price reductions before negotiating an offer.

A price reduction lowers the amount paid for the home, but the resulting change in monthly payment may be relatively small. Applying the same dollars toward a temporary buydown can create a much larger reduction in the principal and interest payment during the first few years.

Temporary Buydown vs. Permanent Buydown

A temporary buydown and a permanent rate buydown both reduce mortgage payments, but the timing of the savings is very different.

Temporary Mortgage Buydown

A temporary buydown concentrates the payment savings into the first one to three years.

Once the buydown period expires, your payment returns to the amount calculated using the full note rate.

This can be particularly valuable when a seller or builder is funding the buydown because the buyer receives meaningful short-term payment savings without personally paying the entire cost.

Permanent Mortgage Rate Buydown

A permanent buydown uses discount points to obtain a lower mortgage rate for as long as you keep the loan.

Because the cost is paid upfront, the value depends in part on how long you expect to keep the mortgage. The longer you keep the loan, the more time you have for the monthly savings to offset the cost of purchasing the lower rate.

Comparing a temporary buydown with a permanent rate reduction can help determine which use of available seller concessions produces more value for your particular purchase.

Temporary Buydown vs. Price Reduction

A seller price reduction decreases the purchase price and potentially reduces the amount financed.

A temporary buydown directs available concession dollars toward reducing your mortgage payment during the first few years instead.

For buyers primarily concerned with monthly cash flow, the difference can be substantial. A relatively large price reduction may produce only a modest change in the mortgage payment, while directing those dollars toward a temporary buydown can reduce the first-year payment by hundreds of dollars per month.

That is why a seller-funded buydown can also be a powerful negotiating tool when a seller wants to make the home more financially attractive without making an equivalent reduction to the purchase price.

What Are Interested Party Contributions?

Seller concessions are one type of interested party contribution.

Depending on the transaction, eligible contributions may come from sellers, builders, real estate agents, or other parties with a financial interest in the sale.

The amount that can be contributed depends on factors such as the mortgage program, occupancy, and loan-to-value ratio. Those limits should be reviewed before negotiating a concession because credits above the allowable amount may not provide additional benefit to the borrower.

Do Temporary Buydowns Help You Qualify for a Larger Mortgage?

Generally, temporary buydowns are designed to reduce your initial payment rather than increase the loan amount for which you qualify.

Mortgage qualification typically considers the payment associated with the full note rate rather than relying solely on the temporary introductory payment.

If your primary goal is determining how much home you may be able to purchase, use the home affordability calculator to estimate your buying power based on income, debts, down payment, interest rate, and other assumptions.

What Happens When the Temporary Buydown Ends?

When the temporary period ends, the buydown subsidy ends and you begin making the full principal and interest payment associated with the mortgage's note rate.

For example, a 3-2-1 buydown on a mortgage with a 6.5% note rate progresses from payments calculated using 3.5%, to 4.5%, to 5.5%, and finally to the full 6.5% rate beginning in year four.

The mortgage rate itself was established when the loan closed. The temporary buydown simply subsidizes part of the payment during the introductory period.

How Should You Use a Seller Concession?

The best use of a seller concession depends on your priorities.

A buyer may be able to use eligible concessions toward closing costs, prepaid expenses, a temporary buydown, permanent discount points, or a combination of allowable expenses.

A buyer who wants to preserve cash at closing may prioritize closing costs. A buyer focused on reducing the first few years of mortgage payments may place greater value on a temporary buydown. Someone planning to keep the same mortgage for many years may want to compare those options with a permanent rate reduction.

LendFriend Mortgage can calculate these scenarios before you negotiate an offer so you can understand how different uses of the same seller credit affect your cash to close and monthly mortgage payment.

Temporary Mortgage Buydown Calculator Results Are Estimates

This temporary mortgage buydown calculator is provided for educational and planning purposes. It does not represent a mortgage approval, commitment to lend, guaranteed interest rate, approved seller concession, or final buydown agreement.

The calculator estimates principal and interest payments based on the loan amount, note rate, loan term, and selected temporary buydown.

Actual eligibility and costs may depend on the mortgage program, property occupancy, loan amount, credit profile, seller or builder contribution, applicable contribution limits, and lender guidelines.

The calculator does not include property taxes, homeowners insurance, mortgage insurance, HOA dues, or other expenses that may be included in your total housing payment.

You can use our other mortgage calculators to estimate monthly payments, affordability, down payments, refinancing scenarios, and other home financing costs.