If you’ve been shopping for a home or refinancing recently, you may have heard the term mortgage buydown pop up in conversations with lenders, real estate agents, or builders. Buydowns can sound complicated at first, but at their core they’re simply a way to lower your interest rate—either temporarily or permanently—by paying money upfront.

In this article, we’ll break down how mortgage buydowns work, the different types available, and when they might (or might not) make sense for you.

What Is a Mortgage Buydown?

A mortgage buydown is an arrangement where a borrower, seller, builder, or lender pays an upfront fee to reduce the interest rate on a mortgage. That lower rate results in lower monthly payments—at least for a period of time, and sometimes for the life of the loan.

Buydowns are most common when interest rates are higher or when sellers and builders want to make homes more affordable and attractive to buyers.

Think of it this way: instead of paying interest slowly over time, you’re paying some of it upfront in exchange for a lower rate later.

The Two Main Types of Buydowns

There are two primary categories of mortgage buydowns: temporary buydowns and permanent buydowns. Each works a little differently.

1. Temporary Buydowns

A temporary buydown reduces the interest rate for the first few years of the loan, after which the rate increases to the original note rate.

The most common temporary buydown structures are:

• 2-1 Buydown: The rate is reduced by 2% in year one and 1% in year two, then returns to the full rate in year three.

• 1-0 Buydown: The rate is reduced by 1% for the first year only, then resets in year two.

For example, if your note rate is 6.5%:

• Year 1: 4.5% (with a 2-1 buydown)

• Year 2: 5.5%

• Year 3 and beyond: 6.5%

The cost of a temporary buydown is typically placed into an escrow account at closing and used to subsidize your monthly payments during the reduced-rate period. Often, this cost is paid by the seller or builder as a concession rather than by the buyer.

Why borrowers like temporary buydowns:

• Lower initial monthly payments

• Easier transition into homeownership

• Helpful if you expect your income to increase in the next few years

2. Permanent Buydowns

A permanent buydown (sometimes called “buying points”) lowers your interest rate for the entire life of the loan.

This is done by paying discount points at closing. Typically:

• 1 point = 1% of the loan amount

• Each point usually lowers the interest rate by about 0.25% (though this varies by market)

For example, on a $300,000 loan:

• One point would cost $3,000

• That payment could reduce your rate from 6.5% to around 6.25%

Unlike a temporary buydown, the savings from a permanent buydown last for the full term of the loan.

Why borrowers like permanent buydowns:

• Lower monthly payments for the life of the loan

• Long-term interest savings

• Great option if you plan to stay in the home long-term

Who Pays for the Buydown?

Buydowns don’t always come out of the buyer’s pocket. Depending on the transaction, the cost may be paid by:

• The buyer (often for permanent buydowns)

• The seller (as part of negotiated concessions)

• The builder (especially on new construction homes)

• The lender (occasionally through promotional programs)

In many markets, sellers and builders use buydowns as a tool to attract buyers without reducing the home’s purchase price.

When Does a Buydown Make Sense?

A mortgage buydown can be a powerful tool—but it’s not always the right move. It often makes sense when:

• You want lower payments during the first few years of ownership

• You expect your income to rise

• You plan to stay in the home long enough to recoup the upfront cost

• A seller or builder is offering to pay for it

However, a buydown may not be ideal if:

• You plan to sell or refinance quickly

• You’d rather use cash for other expenses

• Market rates are expected to drop significantly soon

A good rule of thumb is to calculate your break-even point—the moment when the monthly savings outweigh the upfront cost.

Buydowns vs. Waiting to Refinance

Some buyers wonder whether it’s better to use a buydown or simply wait and refinance later. The truth is, these strategies aren’t mutually exclusive.

A buydown can provide immediate payment relief while keeping the door open for a refinance if rates drop in the future. If you refinance early, any unused funds from a temporary buydown escrow are typically credited toward your loan payoff.

Final Thoughts

Mortgage buydowns are a flexible financing strategy that can help make homeownership more affordable—especially in higher-rate environments. Whether temporary or permanent, the key is understanding how the costs and savings line up with your long-term plans.

The right buydown strategy depends on your goals, timeline, and financial picture. That’s why it’s important to work with a mortgage professional who can run the numbers and help you decide what makes the most sense for you.

If you’re curious about whether a buydown could work for your situation, reach out to our team—we’re happy to walk you through your options and create a strategy that fits your needs.