Rate Buydown Calculator

Permanent points versus a temporary buydown

Buying permanent discount points lowers your interest rate for the life of the loan. One point costs one percent of the loan amount and typically lowers the rate by about a quarter percent, though pricing moves daily. A temporary buydown works differently: it does not change your note rate at all. Instead, a lump sum is placed in escrow to subsidize your payment for the first year or three. A 2-1 buydown means your payment is calculated as if the rate were two percent lower in year one and one percent lower in year two, then it returns to the full note rate.

The naming trips people up

Each digit represents one year of rate reduction. A 1-0 is a single year at one percent below note. A 1-1 is two years, both at one percent below. A 2-1 is two years starting at two percent below. A 3-2-1 covers three years. Critically, on any temporary buydown you must still qualify at the full note rate, so they suit buyers who expect income growth or plan to refinance — not buyers stretching to make the first-year payment work.

Why this is a negotiation tool, not just a math exercise

Agency rules cap how much an interested party — usually the seller — can contribute toward your closing costs, and that cap is set by loan type and down payment. Conventional financing allows three percent with less than ten percent down, six percent from ten to twenty-four percent down, and nine percent at twenty-five percent or more. FHA allows six percent, VA allows four. This calculator computes your specific ceiling in dollars, which is the number worth knowing before you write the offer.

Common questions

Is it better to ask for a price reduction or a rate buydown?

For most buyers, the buydown. Ten thousand dollars off the price changes your payment by a modest amount, while the same ten thousand applied to points or a temporary buydown can change it substantially. Run both in this tool and compare.

What is the maximum a seller can pay toward my costs?

It depends on loan type and down payment — commonly three, six or nine percent of the price on conventional, six percent on FHA, and four percent on VA. The calculator shows your exact limit in dollars.

Do I still have to qualify at the higher rate on a temporary buydown?

Yes. Lenders qualify you at the full note rate. The buydown lowers what you pay in the early years, not what you must be approved for.

More calculators

• Mortgage Payment (PITI) — See your true monthly payment, not just principal and interest
• Affordability & DTI — What price you qualify for, and what you should actually spend
• Rent vs. Buy — Break-even year and net position over time
• Seller Net Sheet — What you actually walk away with after costs and payoff
• Refinance Break-Even — Monthly savings, break-even month, and lifetime interest
• Investment Property ROI — Cash flow, cap rate, DSCR and total return with leverage

Want these numbers run on a real address? Schedule your strategy call →

Educational estimate only — not a loan approval, appraisal, or tax advice. Michael Rush is a licensed REALTOR® with Keller Williams Realty DTC, not a lender, CPA, or attorney. Equal Housing Opportunity.