2-1 Buydown Calculator
Calculate a 2-1, 3-2-1, 1-1 or 1-0 temporary mortgage rate buydown: reduced payments in the first years, the full payment afterwards and the upfront subsidy the seller or lender must fund.
How it works
Reduced payment (year k) = amortized payment on the full loan and term at (note rate − reduction k) · monthly savings = full payment − reduced payment · buydown cost = Σ 12 × monthly savings over the subsidized years
In a temporary buydown the seller, builder or lender deposits money in an escrow account at closing that tops up the borrower’s payments in the first years. In a 2-1 buydown the payment is calculated at 2 points below the note rate in year 1 and 1 point below in year 2; from year 3 the borrower pays the full note-rate payment for the rest of the term. The subsidy equals the total payment difference, and lenders qualify the borrower at the full note rate. Unlike discount points, it does not lower the rate permanently.
Worked example
On a 400,000, 30-year loan at 7%, the full payment is 2,661.21. A 2-1 buydown sets year 1 at 5% (2,147.29, saving 513.92 a month) and year 2 at 6% (2,398.20, saving 263.01). The subsidy is the sum of those 24 monthly savings, 9,323.18, or 2.33% of the loan.
Sources: Fannie Mae Selling Guide B2-1.4-04 — Temporary Interest Rate Buydowns · PNC — How to buy down the interest rate on a mortgage loan
Frequently asked questions
How does a 2-1 buydown work?
Your rate is effectively 2% lower in year 1 and 1% lower in year 2, funded by an upfront deposit from the seller, builder or lender. From year 3 you pay the full note rate for the rest of the loan.
Who pays for a 2-1 buydown?
Usually the seller or home builder as a concession, sometimes the lender. The borrower can pay it too, but then it is just prepaying part of the first two years’ interest.
Is a 2-1 buydown better than buying points?
Points lower the rate for the whole loan; a temporary buydown only helps for 1–3 years. A buydown suits buyers who expect higher income soon or plan to refinance; points suit those keeping the loan long-term.
What happens to unused buydown funds if I refinance?
With most conventional, FHA and VA loans any money left in the buydown account is credited to the borrower, usually as a reduction of the loan balance at payoff. Check your buydown agreement.
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Educational estimate, not lending, legal, tax or investment advice. Lenders, landlords and appraisers apply their own definitions, fees and underwriting rules — confirm the figures with them or a licensed professional before you sign anything.