Temporary Buydown Calculator

How to Use This Temporary Buydown Calculator

1. Choose your loan type. Conventional, FHA, VA or USDA. This sets the financed upfront fee, the mortgage insurance estimate and the seller concession limit. The down payment resets to that program’s usual minimum, and you can change it.
2. Pick a buydown. A 2-1 buydown is the most common. Choose 3-2-1 for the biggest early savings, 1-0 for the cheapest option, 1-1 for two even years, or Custom for fractional structures like 1.5-0.5.
3. Enter the price, down payment and note rate. The note rate is the permanent rate on your loan, the one you’ll pay once the buydown ends.
4. Add taxes, insurance and other seller credits (optional). Taxes, insurance and HOA dues turn principal & interest into a full estimated payment. Other seller credits show whether the buydown still fits under the concession limit.
5. Save it. Copy the share link, print the page, or email the results to yourself and your agent.

How the Buydown Cost Is Calculated

A temporary buydown doesn’t change your loan. Your note rate, loan amount and term stay the same. The buydown cost is deposited into an escrow account at closing, and each month the lender pulls the difference between your full payment and your reduced payment from it. The cost of the buydown is the total of those monthly differences:

Buydown cost = sum over each buydown year of (note-rate P&I − reduced-rate P&I) × 12

Each reduced payment is figured on the full loan amount over the full term at the lower rate, the same method lenders use on a buydown agreement. The calculator rounds each monthly payment to the cent before taking the difference, so its total should match a lender’s buydown worksheet within a few cents.

Worked example: 2-1 buydown on a $350,000 home

Conventional loan, 5% down ($332,500 loan), 30-year fixed at a 6.75% note rate:

That’s about 2.3% of the loan amount. At 5% down, conventional seller credits are capped at 3% of the price ($10,500), so this buydown fits and leaves about $2,840 for closing-cost credits.

2-1 vs. 3-2-1 vs. 1-0 vs. 1-1: Cost on the Same Loan

Using the same $332,500 loan at 6.75%, here’s how the four standard structures compare:

Notice the 3-2-1. At $15,061 it’s more than the $10,500 a seller can contribute on a conventional loan with 5% down. The calculator flags this automatically. The common fixes are a 2-1 buydown instead, a bigger down payment (10% down raises the conventional limit to 6%), or a different loan program.

Seller Concession Limits for a Temporary Buydown

When a seller or builder pays for your buydown, it counts as a seller concession (lenders call it an interested party contribution). Every loan program caps how much the seller can contribute, and the buydown plus any closing-cost credits must fit under that cap together:

Conventional limits are based on the lower of the price or appraised value. Investment properties generally aren’t eligible for temporary buydowns, and some lenders limit jumbo loans to a 2-1 or 1-0. Your loan officer will confirm what your specific loan allows.

Temporary Buydown vs. Price Reduction vs. Discount Points

If a seller is willing to give you $7,660, you have three main ways to use it, and each one helps you in a different way:

• Temporary buydown: the biggest payment relief, but only early on. In the example above, $7,660 saves $422/month in year 1 and $216/month in year 2, then nothing. Good if you expect your income to rise, are moving from rent, or want breathing room for move-in costs.
• Price reduction: a small but permanent payment drop. The same $7,660 off the price lowers the payment by only about $47/month, but for all 30 years. It also trims your down payment and can lower your property tax bill. This is better if you’ll keep the loan a long time and don’t expect to refinance.
• Permanent buydown (discount points): paying points at closing lowers the note rate for the life of the loan. The cost depends on lender pricing that day, so ask your loan officer for a quote comparing points with a temporary buydown. If you think rates will fall and you’ll refinance, a temporary buydown usually beats points because you aren’t paying for years of savings you won’t use.

The “Buydown or Price Reduction?” panel above runs this comparison on your own numbers.

Who Can Pay for a Temporary Buydown?

• The seller, as a negotiated concession in the purchase agreement. This is the most common setup in a buyer-friendly market, and many sellers would rather fund a buydown than cut the list price.
• A home builder, often as a new construction incentive. Builder-paid buydowns are subject to the same concession limits.
• The lender, through a lender credit or promotional program. Lender-funded buydowns may be treated differently from seller concessions, so ask how yours is structured.
• You, the buyer. This is allowed, but it rarely makes sense, since you’re just prepaying your own interest.

What to Know Before You Count on the Lower Payment

• You qualify at the note rate. Lenders approve your debt-to-income ratio using the full note-rate payment, not the year 1 payment. That’s why the calculator shows the qualifying payment separately. Budget for the full payment from day one.
• The payment steps up on schedule. On a 2-1, it rises once after month 12 and again after month 24. It never goes above the note-rate payment, because the note rate is fixed.
• Refinancing or selling early. If you pay off the loan while money is still in the buydown escrow, the unused balance is usually credited toward your payoff, so it isn’t lost. Check the terms of your buydown agreement.
• Taxes and insurance still rise. Escrow changes are separate from the buydown, so your total payment can change for reasons the buydown doesn’t cover.

Comparing loan programs too? Run the same home through our conventional, FHA, VA and USDA calculators, or see how your balance pays down with the amortization schedule. Buying for the first time? Start with our first-time home buyer programs.