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Temporary Rate Buydown Calculator (3-2-1, 2-1, 1-0)
A temporary rate buydown lowers your mortgage payment for the first one to three years by pricing those years as if your interest rate were lower, with the difference paid from an up-front escrow fund — usually a builder or seller incentive. This calculator shows the reduced payment for each buydown year, your monthly and annual savings, and the total cost of the buydown the builder is actually funding.
Worked example
Worked example: $400,000.00 at 6.5% (30-year fixed) with a 2-1 buydown
Full note-rate payment
$2,528.27 /month
Total buydown cost the builder funds
$9,103.68
The full note-rate payment is $2,528.27 per month. With a 2-1 buydown, the total buydown cost — the escrow credit the builder funds — is $9,103.68.
| Year | Effective rate | Monthly payment | Monthly savings | Annual savings |
|---|---|---|---|---|
| Year 1 | 4.5% | $2,026.74 | $501.53 | $6,018.36 |
| Year 2 | 5.5% | $2,271.16 | $257.11 | $3,085.32 |
| After buydown | 6.5% | $2,528.27 | — | — |
Interactive
Run your own numbers
Full payment
$2,528.27 /mo
Total buydown cost
$9,103.68
Full payment: $2,528.27 / month. Total buydown cost: $9,103.68.
| Year | Effective rate | Monthly payment | Monthly savings | Annual savings |
|---|---|---|---|---|
| Year 1 | 4.5% | $2,026.74 | $501.53 | $6,018.36 |
| Year 2 | 5.5% | $2,271.16 | $257.11 | $3,085.32 |
The math
How the math works
The monthly principal-and-interest payment is M = P × r ÷ (1 − (1 + r)−n), where P is the loan amount, r is the monthly rate (annual rate ÷ 12), and n is the term in months (360 for a 30-year loan). Each buydown year's payment uses the same formula with the reduced rate over the full term. The monthly savings is the difference from the full payment, and the total buydown cost is the sum of every subsidized month.
Fine print
Assumptions and limitations
- Payments are principal and interest only — taxes, insurance, HOA dues, and mortgage insurance are excluded.
- Fully amortizing fixed-rate loan; buydown payments are computed over the full original term, which is the standard lender convention for temporary buydowns.
- This is an independent calculator, not a lender quote, a loan offer, or financial advice. Program rules, eligibility, and exact escrow math vary — verify every number with your lender and builder before relying on it.
Answers
Frequently asked questions
What is a temporary rate buydown?
A temporary rate buydown lowers your monthly mortgage payment for the first one to three years of the loan. The seller or builder deposits the payment difference into an escrow account up front, and that fund subsidizes your payment each month. Your actual note rate and long-term payment never change.
What do 3-2-1, 2-1, and 1-0 mean?
The numbers are the rate reductions by year. A 3-2-1 buydown prices year one as if your rate were 3% lower, year two 2% lower, and year three 1% lower. A 2-1 covers two years (2% then 1%), and a 1-0 covers only the first year at 1% lower. After the buydown period, you pay the full note-rate payment.
Who pays for the buydown?
Usually the builder or seller funds it as a closing incentive, because the total cost equals the sum of every subsidized month. Lenders may also offer paid buydowns. If you are paying for it yourself, compare it carefully against a permanent rate buydown or a price reduction — a temporary buydown you fund is just prepaying your own payments.
Is a buydown better than a price reduction?
It depends on your goal. A price reduction lowers your loan amount and every payment for the life of the loan. A temporary buydown concentrates the same builder dollars into much bigger relief in the first years. If you expect to refinance or your income to rise, the buydown often feels bigger; if you plan to hold the loan long-term, run both numbers.
Does the buydown change my loan qualification?
Generally no. Lenders qualify you at the full note rate, not the bought-down payment, so a temporary buydown does not help you qualify for a larger loan. It only changes what you actually pay during the buydown years. Always confirm qualification treatment with your lender, since program rules vary.
References
Sources
- Consumer Financial Protection Bureau — What is a temporary buydown?
- Fannie Mae Selling Guide — B2-1.4-04, Temporary Interest Rate Buydowns
Updated 2026-08-16.
Worksheet
Take it to the negotiating table
The printable Buydown Negotiation Worksheet packages your numbers into the questions to ask the builder's lender — including when to counter with a price reduction instead.
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