What Is Rate Buydown (Temporary Buydown)?

A rate buydown temporarily lowers your mortgage interest rate for the first one to three years of your loan. The cost is paid upfront at closing, usually by the seller through seller concessions, and deposited into an escrow account.

The most common structure is a 2-1 buydown. Your rate is reduced by 2 percentage points in year one and 1 percentage point in year two. Starting in year three, you pay the full note rate for the remaining life of the loan.

Here’s how the math works on a $380,000 loan at 6%:

• Year 1: Effective rate of 4%, payment of roughly $1,814/month
• Year 2: Effective rate of 5%, payment of roughly $2,040/month
• Year 3 and beyond: Full rate of 6%, payment of $2,278/month
• Total savings over two years: Approximately $8,400

At closing, the buydown funds are deposited into a separate escrow account. Each month, the difference between your reduced payment and the full payment the lender expects is drawn from that account. The lender always receives the full payment amount. You just aren’t the one paying all of it for those first two years.

Other buydown structures exist as well. A 1-0 buydown reduces your rate by 1 percentage point for one year. A 3-2-1 buydown reduces your rate for three years, stepping up each year. The 2-1 is the most common because it offers the best balance of cost and monthly savings.

The buydown is typically funded by the seller through seller concessions, but builders, lenders, or even the buyer can pay for it. In the current 2026 market, seller-funded buydowns are especially common because sellers often prefer giving concessions over dropping the list price.

One thing buyers need to understand: you must qualify for the loan at the full note rate, not the reduced rate. The lender wants to make sure you can handle the full payment once the buydown period ends.

A buydown is not the same as buying discount points. Discount points permanently reduce your rate for the life of the loan, while a buydown only reduces it temporarily. In a market where rates may come down, a temporary buydown is often the smarter choice because you get payment relief now and can refinance into a lower permanent rate before the buydown ends.

Buydowns make the most sense for buyers focused on monthly payment affordability in the early years of homeownership, buyers who expect rates to drop and plan to refinance, and buyers in markets where sellers are offering concessions.

Key Facts

• Most common type: The 2-1 buydown reduces your rate by 2% in year one and 1% in year two
• Who pays: Usually the seller through concessions, but builders, lenders, or the buyer can fund it
• Qualification: You must qualify at the full note rate, not the reduced buydown rate
• Cost: On a $380,000 loan at 6%, a 2-1 buydown typically costs $8,000 to $10,000
• Escrow funded: The buydown amount is held in a separate escrow account and drawn monthly

Frequently Asked Questions

Does a rate buydown change my actual interest rate?

No. Your note rate stays the same for the life of the loan. The buydown funds subsidize your monthly payment for the first one to three years so you pay less out of pocket, but the lender still receives the full payment amount from the combination of your payment and the escrow draws.

Can I refinance during the buydown period?

Yes. If rates drop during your buydown period, you can refinance into a lower permanent rate. Many buyers using 2-1 buydowns in today’s market are planning on exactly this. You get the lower payment now and if rates improve, you lock in something better before the buydown ends.

How much does a 2-1 buydown cost?

The cost depends on your loan amount, your interest rate, and the specific buydown structure. On a $380,000 loan at 6%, a 2-1 buydown typically costs around $8,000 to $10,000. This is usually paid by the seller through seller concessions as part of the purchase negotiation.