Mortgage Rate Buydowns, Explained
Two completely different products share the name "buydown," and confusing them costs people real money. Here's the distinction, the arithmetic, and the one question that decides it.
Permanent buydown: discount points
You pay a fee at closing and the lender reduces your note rate for the entire life of the loan. One point equals one percent of the loan amount and buys roughly a quarter point of rate — the actual figure is set daily and varies by program, credit tier, and loan-to-value.
The whole decision is a break-even calculation: divide the upfront cost by the monthly savings to get the number of months to recover it. On a $400,000 loan, $4,000 for about $60 a month is roughly 67 months. Own the loan longer than that and you win; refinance or sell sooner and you lost.
The honest complication is that break-even ignores the time value of the money and the fact that the payment savings are partly offset by a smaller mortgage interest deduction if you itemize. Neither changes the answer much, but you should know they exist.
Temporary buydown: 2-1 and 1-0
A 2-1 buydown reduces the rate by two percentage points in the first year and one in the second, then reverts to the note rate permanently. The full cost is deposited into an escrow account at closing and drawn down monthly to cover the difference.
The rate isn't really lower — someone prepaid part of your interest. You're underwritten at the full note rate regardless, so a temporary buydown never helps you qualify. And if you refinance before it's exhausted, the unused balance is typically credited to your loan.
It's the right tool for a buyer with genuinely rising income, or one who believes strongly in refinancing within two years. It's the wrong tool for a buyer who can't comfortably handle the year-three payment.
Who pays decides everything
Buying points with your own savings is a bet. Having them bought for you is free money.
Buyer-paid points compete directly with your down payment and your reserves. Seller-paid or interested-party-paid points don't — they're money that would otherwise have gone somewhere else in the transaction entirely.
This is why a seller credit directed at a buydown is usually worth more to a buyer than the same dollars as a price reduction. A $12,000 price cut on a $400,000 house saves about $72 a month. The same $12,000 as a permanent buydown saves noticeably more, because it works against the rate rather than trimming a sliver of principal.
Where the program fits
The BuyBorrow Advantage™ Payment Advantage is a third source of buydown funds. Instead of the buydown competing with your down payment, or depending entirely on a seller's willingness to negotiate, a defined portion of the real estate compensation on your own purchase can potentially be directed at the rate.
Every ceiling still applies — buydown dollars count against the same interested-party contribution limit as any other credit, and lenders cap how far a rate may be bought down. The calculator enforces both and shows you where they bind.
Frequently asked
How much does 1 point lower your mortgage rate?
Roughly 0.25%, though the actual exchange rate changes daily and differs by loan program, credit score, and loan-to-value. On some days and some files a point buys noticeably more or less. Ask for the specific quote rather than trusting the rule of thumb.
Is a 2-1 buydown better than points?
They solve different problems. A 2-1 buydown gives large short-term relief and no long-term benefit; points give modest permanent relief. If you're keeping the loan, points almost always win on total dollars. If you need the first two years to be survivable, the 2-1 wins.
Can I buy down my rate with a gift?
Gift funds can generally be applied to down payment and closing costs including discount points on most programs, subject to donor and documentation requirements. The gift must be properly sourced and documented, and the donor typically must be a relative or otherwise permitted party.
Does a buydown help me qualify for a larger loan?
A permanent buydown does, because you're qualified at the lower note rate. A temporary buydown does not — underwriting uses the full note rate regardless of the first-year payment.
Tell me your payment. I’ll build the plan around it.
Send the monthly number you’re comfortable with and I’ll come back with a purchase range, a loan program comparison, and what the BuyBorrow Advantage™ benefit looks like on your file.