Mortgage Buydown Calculator

The lower payment that quietly expires

In a high-rate market, the temporary buydown has become one of the most heavily marketed mortgage features — splashed across builder signs and lender flyers as "buy now, pay less." And the early relief is real: a 2-1 buydown genuinely cuts your first-year payment by hundreds of dollars a month. But it is built to expire. The discount is not a lower interest rate; it is a pot of money set aside at closing that gets spent down over a year or two, after which your payment climbs to the full amount and stays there for the next three decades. The tools that lenders put in front of you tend to celebrate the low first-year figure and whisper the rest. This calculator does the opposite: it shows you the discounted payments and the permanent one side by side, plus the true cost of the subsidy, so you can decide with the whole picture in view.

How to use the calculator

1. Enter your loan amount and note rate. The note rate is your real, contractual interest rate — the one your loan actually carries. The buydown does not change it; it only subsidises the payment temporarily.
2. Pick your buydown type. The 2-1 is by far the most common. Choose 3-2-1 for a longer, steeper discount, or 1-1 and 1-0 for the gentler programs some lenders offer.
3. Read the year-by-year payments and the total cost — the dollar figure a seller or builder would have to fund to make the buydown happen.
4. Enter a comfortable payment in the reality-check box. The tool will tell you whether the permanent payment — not the teaser — actually fits your budget. This is the test that matters.

How a temporary buydown really works

Here is the mechanism stripped of marketing. Your mortgage is a normal fixed-rate loan at the note rate, amortising over the full term exactly as it would with no buydown at all. Separately, at closing, a buydown escrow account is funded with a lump sum. Each month during the buydown period, you pay a reduced amount, and the escrow tops it up to the full payment the lender is actually owed. When the escrow is exhausted — at the end of the scheduled period — the top-ups stop and you pay the full amount yourself.

The size of each year's discount is defined by the program name. A 2-1 means your payment is computed as if your rate were 2 points lower in year one and 1 point lower in year two. A 3-2-1 adds a third, steeper year: 3 points off, then 2, then 1. The reduced payment for any year is simply the normal amortised payment you would make if the whole loan were at that lower rate, for the full term. The monthly subsidy is the difference between that reduced payment and the real note-rate payment — and the sum of all those monthly differences, across every subsidised month, is the total cost of the buydown.

The math it does for you

For every rate involved, the calculator runs the standard mortgage amortisation formula — the same one your lender uses — to find the exact monthly principal-and-interest payment for a loan of your size over your term. It computes the payment at your full note rate, then again at each reduced rate the buydown schedule calls for. The difference between the full payment and each reduced payment is that year's monthly saving; multiplied by twelve it is the year's subsidy; summed across all the buydown years it is the total escrow that must be funded. Because the engine works from the real formula rather than a flat percentage estimate, the cost it shows lines up with what a lender's buydown agreement would actually require.

A worked example

Take a 400,000-dollar loan at a 7 percent note rate over 30 years with a 2-1 buydown. The full note-rate payment is about 2,661 dollars a month — that is your real, permanent payment. In year one the payment is figured at 5 percent, dropping it to roughly 2,147 dollars; in year two at 6 percent, about 2,398 dollars. The year-one subsidy is therefore around 514 dollars a month, or about 6,170 dollars for the year, and the year-two subsidy about 263 dollars a month, roughly 3,160 dollars. Together the buydown costs in the region of 9,300 dollars — close to 2.3 percent of the loan — and that is the amount a seller or builder must place in escrow. The crucial line: from month 25 onward you pay the full 2,661 dollars for the remaining 28 years. If that number makes you wince, the buydown has not solved an affordability problem; it has postponed it. Enter your own figures above to see your exact numbers.

The honest verdict most calculators skip

A buydown is a good deal under one condition and a dangerous one under another, and the difference is entirely about that permanent payment.

When a buydown is smart: you can already afford the full note-rate payment comfortably today, a seller or builder is funding the buydown as a concession you would otherwise forfeit, and you simply prefer to keep some extra cash in your first year or two — for furnishing the home, building a cushion, or covering moving costs. Here the buydown is pure upside: free breathing room on top of a payment you could have handled anyway.

When a buydown is a trap: the discounted first-year payment is the only version you can actually afford, and you are quietly betting that your income will rise, or that you will refinance to a lower rate, before the subsidy ends. If either bet fails, you face the full payment with the same budget that was already stretched. Rates may not fall on your schedule, and raises are never guaranteed. A buydown should never be the thing that makes an unaffordable home look affordable — that is precisely the situation it is best at disguising.

This is why the reality-check field exists. Tell the calculator the payment you could genuinely live with, and it compares it against the permanent figure — not the teaser — and tells you plainly whether the home fits.

Buydown versus discount points — they are not the same

Where the money comes from — and what to ask for

Almost always, a temporary buydown on a purchase is funded by the seller or the builder, not by you. That makes it feel like a gift, and in many markets it genuinely is a smart concession for a seller who would rather discount your payment than drop the sticker price. But as the buyer you hold a quiet piece of leverage: the buydown is a fixed pot of money being spent on your behalf, and you can ask whether that same amount would serve you better as a permanent price reduction. A 9,000-dollar buydown spreads relief across two years; a 9,000-dollar price cut shrinks your loan for all thirty. Which is better depends on how long you will stay and how tight your early budget is — but you should at least put the two side by side, and the total-cost figure here is exactly what you need to do that.

Common mistakes this prevents

Pro tips for evaluating a buydown offer

• Always read the permanent payment first, not the year-one figure. That number is what you are really signing up for; everything else is a temporary discount on top of it.
• If the buydown is the only way the payment looks affordable, treat that as a warning, not a solution. The full payment arrives whether or not your income has caught up.
• Ask the seller's agent whether the buydown amount could instead come off the purchase price. Run both through the calculator before deciding — staying-power is the deciding factor.
• If you do take a buydown, quietly set aside the year-one savings rather than spending them. You will have built a cushion for exactly the month the payment steps up.
• Confirm in writing how any unused escrow is handled if you refinance or sell early — almost always it credits your loan, but get it in the agreement.
• Re-run this calculator whenever the rate, loan amount, or program changes; the cost and the permanent payment move with all three.

Where this fits in your mortgage plan

A buydown is one lever among several, and the smartest borrowers compare them rather than grabbing the first one offered. The permanent payment this tool surfaces is the figure to anchor every other decision around — how much house you can carry, whether to put more down, whether permanent points beat a temporary discount. Pair this with a plain loan payment calculator to size the full payment against your income, and with our PMI and compound-interest tools to see the rest of the picture. A buydown used on top of a payment you already control is a gift; a buydown used to reach for a payment you do not is a postponed problem. Knowing the real number — not the teaser — is what tells the two apart.

Frequently asked questions

Related tools