Cash to close is the total amount you need to bring to closing day —…
Mortgage Rate Buydown — Lower Your Rate & Monthly Payment
With rates in the mid-6% range, mortgage buydowns are one of the most powerful tools available to homebuyers right now. Here is exactly how they work and when they make sense.
With mortgage rates in the mid-6% range, one of the most powerful tools available to homebuyers right now is the mortgage rate buydown. Whether you are buying a new construction home where the builder is offering incentives, or negotiating with a seller in a slower market, understanding how buydowns work can save you thousands of dollars — sometimes tens of thousands.
This guide explains every type of mortgage buydown, shows you the real math, and tells you exactly when a buydown makes sense versus when you should use the money differently.
~6.1%
Average 30-year fixed mortgage rate as of early 2026
1%
Cost of one discount point as a percentage of loan amount
0.25%
Typical rate reduction per discount point purchased
$150+
Monthly savings from a 0.5% rate reduction on a $350K loan
What Is a Mortgage Rate Buydown?
A mortgage rate buydown is when someone — you, the seller, or the builder — pays upfront money to reduce the interest rate on your mortgage. That upfront payment is called discount points or mortgage points, and it buys a lower rate that reduces your monthly payment.
There are two main types of buydowns: permanent buydowns that lower your rate for the entire loan term, and temporary buydowns that reduce your rate for the first 1-3 years before returning to the original rate.
Permanent Buydown — Discount Points
The most straightforward buydown. You pay upfront points at closing to permanently lower your interest rate for the life of the loan.
How it works: Each discount point costs 1% of your loan amount and typically reduces your rate by approximately 0.25% — though this can vary by lender and market conditions.
Permanent Buydown Example — $400,000 Loan at 6.5%
| Scenario | Points Paid | Upfront Cost | Interest Rate | Monthly Payment | Monthly Savings |
|---|---|---|---|---|---|
| No buydown | 0 | $0 | 6.50% | $2,528 | — |
| 1 point | 1 | $4,000 | 6.25% | $2,463 | $65/month |
| 2 points | 2 | $8,000 | 6.00% | $2,398 | $130/month |
Break-even on 2 points: $8,000 ÷ $130/month = 61 months (about 5 years). If you stay in the home longer than 5 years, the buydown saves you money. If you sell or refinance before then, you may not recoup the cost.
Temporary Buydowns — 3-2-1 and 2-1
Temporary buydowns reduce your rate for the first few years of the loan, then return to the original rate. These are the buydowns builders and sellers are using as incentives right now — especially in new construction markets across Arizona, Florida, and Michigan.
The 2-1 Buydown
The most common temporary buydown. Your rate is reduced by 2% in year one and 1% in year two, then returns to your full rate from year three forward.
2-1 Buydown Example — $400,000 Loan at 6.5%
Year 1
4.5%
~$2,027/mo
Year 2
5.5%
~$2,271/mo
Year 3+
6.5%
~$2,528/mo
Full Term
6.5%
~$2,528/mo
Year 1 savings vs. full rate: ~$501/month = $6,012 for the year. Year 2 savings: ~$257/month = $3,084 for the year. Total savings over 2 years: ~$9,096. The cost of a 2-1 buydown on a $400,000 loan is typically around $9,000-$10,000 — which is why builders and sellers often offer to pay for it as an incentive.
The 3-2-1 Buydown
Works the same way but over three years — your rate is reduced by 3% in year one, 2% in year two, 1% in year three, then returns to the full rate in year four and beyond.
3-2-1 Buydown Example — $400,000 Loan at 6.5%
Year 1
3.5%
~$1,796/mo
Year 2
4.5%
~$2,027/mo
Year 3
5.5%
~$2,271/mo
Year 4+
6.5%
~$2,528/mo
3-2-1 buydowns cost more upfront — typically 3-4% of the loan amount — but provide the most significant payment relief in the early years. Most common when the seller or builder is paying for it.
Who Pays for a Buydown?
Buyer-Paid Buydown
You pay for the points at closing. Makes sense when you plan to stay in the home long enough to recoup the upfront cost through monthly savings. Calculate your break-even point before deciding — divide the upfront cost by your monthly savings.
Seller-Paid Buydown
The seller contributes to your closing costs specifically to fund a rate buydown. Common in slower markets where sellers need to make their home more attractive. Functionally a price reduction — but one that shows up in your monthly payment rather than the purchase price.
Builder-Paid Buydown
Extremely common in new construction right now. Builders in markets like Lakewood Ranch, Queen Creek, Apache Junction, and across Metro Detroit are offering 2-1 buydowns as incentives to move inventory. This is free money — always evaluate it carefully before declining.
Lender Credit Buydown
Some lenders offer rate credits in exchange for a slightly higher rate — essentially the reverse of paying points. You accept a higher rate and the lender credits you money toward closing costs. Useful when you are cash-constrained at closing.
Builder Buydown Incentives — How to Evaluate Them
If you are buying new construction in Lakewood Ranch, Queen Creek, Gilbert, Brighton, or any active builder market, the builder's sales team will almost certainly offer you a buydown incentive — often framed as "use our preferred lender and we will buy down your rate." Here is how to evaluate that offer honestly:
Step 1: Get our wholesale rate for the same loan. Do not assume the builder's preferred lender has a competitive rate just because they are offering an incentive.
Step 2: Compare the total cost of ownership — builder's lender rate plus incentive vs. our wholesale rate with no incentive. Sometimes the builder's incentive covers the rate difference and then some. Sometimes it does not.
Step 3: Consider the temporary vs. permanent nature of the buydown. A 2-1 buydown gives you two years of reduced payments — but what happens in year three when the payment steps up? Make sure you can afford the full rate payment, not just the buydown payment.
We do this comparison for every new construction buyer we work with. Bring us the builder's offer and we will tell you honestly whether it is worth taking.
Permanent Buydown vs. Temporary Buydown — Which Is Better?
This is the most common question we get about buydowns. Here is the honest answer:
Permanent buydowns make more sense when:
- You plan to stay in the home for at least 5-7 years
- You have extra cash available at closing beyond your down payment
- You believe current rates are not likely to drop significantly in the near term
- You want payment certainty for the full loan term
Temporary buydowns make more sense when:
- A seller or builder is paying for it — it is free savings to you
- You expect your income to increase significantly in the next 2-3 years
- You believe rates may drop and you plan to refinance before the buydown period ends
- You need lower payments in the short term while adjusting to homeownership costs
One important caution on temporary buydowns: You still qualify for the mortgage at the full note rate — not the buydown rate. So your debt-to-income ratio is calculated at 6.5%, not 4.5%, even in a 2-1 buydown. The buydown affects your actual payments but not your qualification threshold.
Buydown vs. Larger Down Payment — Which Is Better?
If you have extra cash and are deciding between buying points and making a larger down payment, here is the general guidance:
A larger down payment reduces your loan balance permanently and eliminates PMI if you reach 20% — that is a guaranteed, permanent benefit. Buying points reduces your rate but has a break-even timeline that depends on how long you stay. In most cases, if you are choosing between the two, increasing your down payment is the better financial decision — unless you are already at 20% down or eliminating PMI is not a factor.
The exception is when someone else is paying for the buydown. If a seller or builder is funding it, take it — it costs you nothing and reduces your payment immediately.
Related Resources
🏠How Much Home Can I Afford? — Free Purchase Power Calculator 🔄No Closing Cost Refinance — What It Is and When It Makes Sense 📊Will Mortgage Rates Go Down in 2026? Expert Forecasts ✅How to Get Pre-Approved for a Mortgage — Step by StepFrequently Asked Questions
How much does a buydown cost?
For a permanent buydown, each discount point costs 1% of your loan amount and typically reduces your rate by 0.25%. On a $400,000 loan, one point costs $4,000. For a 2-1 temporary buydown, the cost is typically equal to the total payment savings over the buydown period — roughly 2-3% of the loan amount, or $8,000-$12,000 on a $400,000 loan. A 3-2-1 buydown costs more — typically 3-4% of the loan amount.
Are buydown points tax deductible?
Discount points paid on a purchase mortgage are generally tax deductible in the year they are paid, subject to IRS rules and income limitations. Points paid by a seller on your behalf may also be deductible. Tax rules are complex and change — consult a CPA or tax professional for guidance specific to your situation. We are not tax advisors.
Can I use a buydown on any loan type?
Permanent discount points are available on most loan types — conventional, FHA, VA, and jumbo. Temporary buydowns like 2-1 and 3-2-1 are available on conventional and FHA loans. VA loans have specific rules about who can pay for a buydown. Investment properties and cash-out refinances may have restrictions. We will tell you exactly what is available for your specific loan type.
What happens to my buydown if I refinance?
If you refinance before recouping the cost of your buydown points through monthly savings, you lose the unrecouped portion. This is why calculating your break-even point before paying for a permanent buydown is essential. For temporary buydowns, if you refinance during the buydown period, the remaining funds in your buydown account may be applied to your loan balance depending on the loan structure — ask us how this works for your specific situation.
Should I take the builder's buydown offer or use my own lender?
This requires a side-by-side comparison — and we do this for free for every new construction buyer we work with. Bring us the builder's offer: the rate, the buydown structure, and any other incentives. We will show you our wholesale rate for the same loan and calculate the total cost of ownership for both options over your expected ownership period. Sometimes the builder's incentive is genuinely worth it. Sometimes our wholesale rate beats the incentive even without the buydown. You cannot know without running the numbers.
Want to Know If a Buydown Makes Sense for Your Situation?
We run buydown scenarios for buyers every day — including side-by-side comparisons with builder preferred lender offers. Talk directly with Kirk or Ken. Straight answers, wholesale rates, zero junk fees.
Talk to Us — It Is Free
Related Posts
