Buydown Calculator: What Does Buying Down Your Rate Cost?
A temporary buydown lowers your interest rate for the first year or two of your loan, in exchange for an upfront cost, often paid by the seller or builder. This calculator shows what a buydown costs and how much it saves you during the reduced-rate period, so you can tell whether it's worth it.
How a temporary buydown works
The most common structures are the 2-1 and 1-0 buydowns. A 2-1 buydown drops your rate by 2% in year one and 1% in year two, then returns to the full rate in year three. A 1-0 drops it 1% for the first year only. The cost of that reduced interest is paid upfront, into an escrow account that covers the difference each month. Your payment is genuinely lower during the buydown period, then steps up to the normal payment.
Who actually pays for it
Here's the key: buydowns are frequently paid by the seller or builder as a concession, not by you. In a slower market, a seller may prefer to fund a buydown rather than drop the price, because it gives the buyer immediate payment relief. So a buydown can cost you nothing out of pocket while meaningfully lowering your early payments, which is worth negotiating for. If you're comparing this to seller-paid closing costs, both are forms of seller concession worth weighing.
When a buydown makes sense (and when it doesn't)
A buydown is most valuable if you expect your income to rise, or if you plan to refinance when rates drop, since it eases the early payments while you wait. It's less useful if it's coming out of your own pocket and you'd be better off applying that money to a permanent rate reduction (discount points) or your down payment instead. The math depends on who's paying and how long you'll keep the loan.
