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The Buydown Program

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What Is a mortgage buydown?

 buydown is a way for a home buyer to lower their mortgage interest rate for the first few years of their mortgage in exchange for an upfront fee. A buydown is most often paid for by the seller or builder as a concession to help close the deal. 

When someone uses a buydown, their interest rate will be reduced for a predetermined period of time. This type of financing arrangement can be especially beneficial right now when mortgage interest rates are high. Additionally, they are particularly helpful in the first few years of a mortgage when most of the monthly payments are going toward interest. 

Reduce your monthly payment  with our temporary buydown mortgage, which gives buyers a lower rate and lower monthly payments for 1-3 years at the start of their loan. The seller or builder provides the savings, so there’s no cost to the buyer.

Mortgage Buydown Structures

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There are various structures for buydown terms. The most common buydown structures are a 3-2-1 buydown, 2-1 buydown, and 1-1 buydown

3-2-1 Buydown

The 3-2-1 temporary buydown gives buyers a lower rate and a lower monthly payments for the first three years of their loan. The loan officer and the seller  provide the savings, so there’s no cost to buyers.

Example:

Sale price: $625,000 | Down payment: $31,250 | Loan amount: $593,750
30-year fixed rate: 6.875% | Annual percentage rate: 7.11%

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Total Savings and credit: $27,061

2-1 Buydown

The 2-1 temporary buydown gives buyers a lower rate and a lower monthly payment for the first two years of their loan. The loan officer and the seller provide the savings, so there’s no cost to buyers.

Example:

Sale price: $625,000 | Down payment: $31,250 | Loan amount: $593,750
30-year fixed rate: 6.875% | Annual percentage rate: 7.11%

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Total Savings and credit: $13,759

1-1 Buydown

The 1-1 temporary buydown gives buyers a lower rate and a lower monthly payments for the first two years of their loan. The loan officer and the seller provide the savings, so there’s no cost to buyers.

Example:

Sale price: $625,000 | Down payment: $31,250 | Loan amount: $593,750
30-year fixed rate: 6.875% | Annual percentage rate: 7.11%

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Total Savings and credit: $9,318

What Is a mortgage buydown?

A mortgage buydown offers plenty of benefits, but there are also some downsides you should know about before going forward with one. 

PROS

  • Interest savings: When you use a mortgage buydown, you’re able to save thousands of dollars in interest during the first few years of your mortgage. 

  • Lower monthly payment: A buydown helps you get a lower monthly payment during the first few years, which can help you ease into paying a mortgage. 

  • Negotiation tactic: A buydown can be a negotiation tactic for sellers who want to close the deal without coming down in the price of the house. 

CONS

  • Upfront fees: Buydowns require large upfront fees, usually paid by the seller or builder. Because the fees are so steep, sellers and builders may be less likely to offer them. 

  • Temporary: Buydowns typically aren’t permanent — they typically last anywhere from one to three years.

  •  Default risk: The increase in mortgage payment could come as a surprise for some buyers and increase their chances of not being able to pay their mortgage. 

Is a mortgage buydown a good idea? 

A mortgage buydown can be a good idea, but it’s not right for everyone. If you’re a buyer and a seller or builder offers a buydown to help make the deal seem more enticing, it could be worth taking it. After all, you’ll save thousands of dollars on your mortgage payments — all on someone else’s dime. 

However, you should only use a mortgage buydown if you feel confident you can afford the mortgage payment with the full interest rate. Unfortunately, the increase in interest rate can come as an unwelcome surprise to homeowners. And if you haven’t run the numbers with the higher payment, you could find that it’s actually not affordable for you long-term. 

Finally, know that not all loans offer buydowns, so it may not be an option available to you anyways. Some lenders may not offer buydowns for conventional loans. And government-backed loans have more specific guidelines for the use of buydowns, meaning they aren’t available to everyone. 

Finally, while a mortgage buydown can save you money, there are more cost-effective and permanent ways of doing so, such as by buying discount points, which we’ll discuss in the next section. 

The Bottom Line

A mortgage buydown is a way of lowering your mortgage interest rate for the first few years of your loan. It’s different from discount points, which allow you to permanently lower your rate. You typically wouldn’t pay for a mortgage buydown yourself — a seller or builder might offer one to entice you to buy their home. And while they can save you thousands of dollars, they aren’t right for everyone or in all situations.

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Buydown Program

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Michael Forkas is San Francisco Bay Area Leading Realtor and Real Estate Professional. He helped hundreds of buyers & sellers in Bay Area, resulting in over $120.5 Million in closed transactions.

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Led by Michael Forkas, a seasoned real estate developer, Forkas Home Team offers a client-centric approach. Their innovative strategies and focus on client satisfaction set them apart. They guarantee to sell your home within a set timeframe and price, or they will buy it themselves at an agreed price.

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