A rate buydown lowers your interest rate — and your monthly payment — for the first few years of the loan. They're back in 2026 as sellers offer them to help homes sell.
Better Offers Inc structures buydowns all the time. Here's how they work and when they make sense — in plain English.
How a Buydown Works
A buydown just means someone pays money upfront so your rate starts lower. The simplest way to see it:
Example: a 2-1 buydown on a 6.5% loan
- Year 1: you pay as if your rate were 4.5% (2% below)
- Year 2: you pay as if it were 5.5% (1% below)
- Year 3 onward: your real rate, 6.5%
Your payment is low at the start, then steps up to normal. The discount is funded by money set aside at closing.
Types of Buydowns
With a temporary buydown, your payment starts low and climbs back to normal over the first year or two. The name just tells you the discount — the first number is how much comes off your rate in year one, the next number is year two, and so on. Year one is always the cheapest.
1-0 buydown: 1% off your rate in year one, then the full rate after that. The smallest and cheapest.
2-1 buydown (most common): 2% off your rate in year one, 1% off in year two, then the full rate from year three on.
3-2-1 buydown: 3% off in year one, 2% off in year two, 1% off in year three, then the full rate from year four on. The biggest early break.
Permanent buydown (discount points): Different idea — instead of a few cheap years, you pay upfront to lower your rate for the whole loan. Roughly 1 point (1% of the loan) lowers your rate about 0.25%.
What Does a Buydown Cost?
The cost is simply the total payment savings, pre-funded at closing.
Get a Purchase Quote
See what you can qualify for and compare purchase loan options before you shop.
CA DRE #01212512 | Free, no-obligation quote
A 2-1 buydown on a $500,000 loan at 6.5%:
- Full payment at 6.5%: $3,160/month
- Year 1 at 4.5%: $2,533/month — saves $627/month ($7,524 for the year)
- Year 2 at 5.5%: $2,839/month — saves $321/month ($3,852 for the year)
- Total funded upfront: about $11,376
Who Pays?
The seller (most common right now). The seller credits about $11K at closing to fund it. Sellers like this because, unlike a price cut, it doesn't lower the comps or appraisal.
You. You can fund it yourself — a good move if you expect your income to rise and want lower payments now.
The builder. New-construction builders use buydowns constantly to move inventory. The pitch is usually "6.5% — or 4.5% with our 2-1 buydown."
When a Buydown Makes Sense
- The seller or builder is paying — that's free money, take it.
- Your income will rise soon — a new job, or a spouse returning to work.
- You're stretching on the payment — the low early years ease you into ownership.
- You plan to refinance within a couple of years — if rates fall, you'll refi before the discount ends anyway.
When It Doesn't
- You can already afford the full payment comfortably.
- You're likely to sell within 2–3 years.
- A straight price reduction would actually serve you better — run it both ways.
Temporary vs. Permanent
| Feature | Temporary (2-1) | Permanent (Points) |
|---|---|---|
| Lower rate lasts | Years 1–2 | Life of the loan |
| Payment | Steps up over time | Stays fixed |
| Best for | Short-term relief | Long-term savings |
The key test for points is break-even. On a $500,000 loan, going from 6.5% to 6.0% costs 2 points ($10,000) and saves about $150/month. That's a 67-month (5.5-year) break-even. Pay points if you'll keep the loan 7+ years; skip them if you might sell or refinance within five.
You Might Also Like
- →
Why Mortgage Rates Don't Follow the Fed Rate
Learn why mortgage rates don't move with Fed rate changes. The 10-year Treasury connection, MBS spreads, and what actually drives mortgage rates in 2026.
- →
Why FHA Demand Is Rising in California
Recent March 2026 mortgage data shows FHA demand rising even as rates climbed. Here's what that means for California buyers.
Stacking a Buydown With Other Seller Credits
Sellers can only contribute so much: conventional 3–9% (depending on down payment), FHA 6%, VA 4%.
Within those limits, you can stack: a 2-1 buydown ($11K) + a closing-cost credit ($8K) + prepaid taxes and insurance (~$3K) = about $22K in total seller help.
Quick Answers
- You qualify at the real rate (6.5%), not the discounted one. A buydown won't let you afford more house.
- Leave early? If you refinance during a temporary buydown, the unused money is applied to your loan — you don't lose it, but you also don't pocket it.
- What loans? Buydowns work on conventional, FHA, VA, and jumbo loans.
- Already under contract? You can still add a buydown through an addendum.
Better Offers Inc | CA DRE #01212512