Mortgage Buydowns: How to Reduce Your Interest Rate

October 1, 2025·By Tucker Allen

What a buydown is

A buydown is paying money at closing in exchange for a lower interest rate. The cash either reduces your rate for the life of the loan (permanent buydown / discount points) or for the first 1–3 years (temporary buydown).

The catch: the upfront cost has to make sense relative to how long you'll stay in the home. If you sell or refinance before recouping the cost, you've lost money.

Permanent buydowns (discount points)

Each "point" costs 1% of the loan amount and typically lowers your rate by 0.25%. On a $400,000 loan:

1 point ($4,000): rate drops from 6.5% to 6.25%, saving ~$66/month.
2 points ($8,000): rate drops to 6.0%, saving ~$132/month.

Break-even on 1 point: $4,000 ÷ $66 = 60 months (5 years). If you'll stay in the home longer than that with the same loan, the point pencils.

When permanent buydowns make sense

You're confident you'll stay 5+ years.
You have extra cash beyond down payment + reserves.
Rates are at a long-term high and you don't expect to refinance.
You're in a high tax bracket — points can be deductible like mortgage interest.

Temporary buydowns (2-1 and 3-2-1)

The seller (or sometimes the lender) credits a lump sum into an escrow account that subsidizes your interest rate for the first 1–3 years.

2-1 buydown

Year 1: rate is 2% lower than the note rate.
Year 2: rate is 1% lower.
Year 3+: rate returns to the note rate.

On a 6.5% note rate, you pay as if it were 4.5% in year 1 and 5.5% in year 2.

3-2-1 buydown

Year 1: 3% lower than note.
Year 2: 2% lower.
Year 3: 1% lower.
Year 4+: full note rate.

Larger upfront cost — typically paid by the seller as a concession in a buyer-friendly market.

When temporary buydowns make sense

The seller is offering a concession and you'd otherwise have nothing to do with the cash.
You expect rates to drop within a couple years and plan to refinance.
Your income is rising and you want lower payments early.
You're stretching to qualify and need the lower payment to fit DTI guidelines.

Who pays

Buydowns can be paid by the buyer, seller, lender, or builder. Most temporary buydowns in current markets are seller-paid — they're a way to make a listing more attractive without dropping the asking price.

The honest math

Run the break-even calculation before buying any points. The Loan Estimate will show the rate with and without points. Compare:

Cost of the buydown (out of your pocket OR taken from seller concession)
Monthly savings
How long you plan to stay or before you'd realistically refinance

If the breakeven is longer than your expected horizon, skip the buydown. Use the cash for reserves, principal reduction, or other higher-return uses instead.

What buydowns aren't

Not a way to qualify for a bigger loan. Temporary buydowns must qualify at the full note rate, not the buydown rate.
Not a substitute for shopping rate. Compare lenders first; then decide on points.
Not always tax-deductible. Discount points are deductible if you itemize, but rules apply (must be standard for your area, can't be excessive). Consult a CPA.