Buydown calculator

How to use the buydown calculator

Start with the home price, down payment and a no-points note-rate quote. Choose a 1-0, 1-1, 2-1 or 3-2-1 plan. The timeline shows your share of principal and interest in each year and the full payment after the subsidy ends. Check which plans your lender actually offers.

Open the loan options for FHA upfront mortgage insurance or a VA funding fee, including exemption status. Add taxes, insurance, mortgage insurance and HOA for a more complete housing budget. The added expenses stay constant in this illustration, although actual bills can rise.

If you have a second quote with discount points, enter its rate and points together. The quoted rate already includes the discount; it is never reduced again by a rule of thumb. Use quotes from the same lender for the same loan on the same day.

Then enter a seller credit and eligible closing costs. Compare cash needed now, monthly relief in year one, or nominal cost through your chosen payoff month. Print the comparison to discuss with your loan officer and real estate agent.

How a temporary buydown works

The note rate stays fixed. An account funded at closing pays part of your required principal-and-interest payment during the first years. Your payment plus the account contribution equals the full payment; the loan balance follows the note-rate amortization schedule.

• 1-0: one point below for 12 months.
• 1-1: one point below for 24 months.
• 2-1: payments computed two percentage points below the note rate for 12 months, then one point below for 12 months.
• 3-2-1: three points below for 12 months, two below for 12 months, then one below for 12 months.

For the illustrative $450,000, 30-year loan at 6.875%, the 3-2-1 account needs $20,509.32. Monthly P&I paid by the borrower is $2,116.07 in year one, $2,381.44 in year two, $2,661.92 in year three, then $2,956.18 for years four through thirty. Taxes, insurance, mortgage insurance and HOA are additional. The note rate is 6.875% throughout.

Fannie Mae and Freddie Mac limit temporary plans to three years, a three-percentage-point initial reduction and no more than one point of increase per year. Their eligible transactions include primary homes and second homes, with restrictions; investment properties and cash-out refinances are excluded. FHA permits temporary buydowns on fixed-rate purchases, and VA permits them on eligible fixed-rate loans. This calculator models a primary-residence purchase, not every transaction those agencies permit.

Can the first-year payment be computed at a rate in the 3s?

Yes, when the note rate and plan support it. A 3-2-1 produces a first-year payment-equivalent rate from 3% to below 4% when the note rate is from 6% to below 7%. A 2-1 needs a note rate from 5% to below 6%; a 1-0 or 1-1 needs one from 4% to below 5%.

This describes the payment calculation, not a 3% mortgage interest rate or an available offer. In the example, the first-year payment equivalent is 3.875% for 12 months, while interest accrues at the 6.875% note rate. Points may lower a quoted note rate, but their cost must come from the lender. No fixed points-to-rate exchange guarantees these results.

Price cut, closing costs, buydown or points?

Ask what the seller is willing to negotiate and what the lender can accept. An equal credit and price reduction are comparison assumptions, not offers the seller must make. Redfin reported concessions in 46.2% of sales in its seasonally adjusted, agent-reported sample for the three months ending May 2026; the figure includes repairs and closing-cost help, not just buydowns (Redfin, June 2026). Local conditions and the individual listing matter.

• Price cut: lowers the principal and, at the same down-payment percentage, the required down payment. It can reduce long-term financing cost. The model assumes the same home value and quoted rate; a real rate quote or appraisal may change.
• Closing-cost credit: preserves cash at closing, up to actual eligible costs and applicable contribution limits. It cannot substitute for the required down payment.
• Temporary buydown: directs the credit into early monthly relief. Over a fully used plan, the subsidy pays out the dollars deposited; it does not create extra interest savings on the note. Its value relative to cash today depends on your needs and alternatives.
• Quoted points: lower the note rate for as long as you keep the loan. The payoff horizon and actual quote determine whether they are worthwhile. Spending seller credit on points also means giving up another use of that credit.

The calculator applies required points and buydown funding first, then ordinary closing costs, then prepaids. Any remainder is shown as unused, not as cash back. A lender must confirm cost classifications, permissible funding and the complete transaction:

• Conventional primary home: 3% above 90% LTV/CLTV, 6% from above 75% through 90%, and 9% at 75% or less, applied to the lower of price or appraisal. Actual eligible costs can be a tighter limit (Fannie Mae).
• FHA: 6% of sales price, including seller-paid points and buydowns (HUD Handbook 4000.1).
• VA: the 4% reasonable-value limit covers concessions such as temporary buydowns, extra points and prepaid taxes or insurance. Ordinary closing costs and lender-confirmed market-normal points are treated separately (VA Lender's Handbook).

How the comparison is calculated

Fixed-rate principal and interest is calculated from the financed loan amount, annual note rate and original term. Payments are rounded to cents. Each buydown year uses the original principal and term at that year's payment-equivalent rate; the account funds the difference from the full monthly payment. The balance still amortizes at the note rate.

Cash needed includes the down payment, entered closing costs, prepaids and any program fee paid at closing, less usable credit toward costs. FHA upfront mortgage insurance or a VA funding fee is included in principal when financed. Cash figures are before deposits, gifts, secondary financing and other settlement adjustments.

Nominal benefit compares that cash, payments made and the balance owed at your selected payoff month against taking no credit. It also includes the selected treatment of unused buydown funds and optional proportional property-tax savings. It excludes investment returns, tax deductions, changes to mortgage insurance, refinance costs and future changes to the other expenses. The result is a comparison under those assumptions, not a universal ranking.

Before you agree to a buydown

• Budget for the full payment. Qualification uses the note-rate payment and other applicable housing expenses. Temporary relief does not lower the contractual note payment.
• Do not depend on refinancing. Future rates, credit, income, property value and closing costs may make refinancing unavailable or unattractive.
• Check the agreement. For conventional loans, unused-fund treatment follows the program and written agreement. VA applies remaining funds to the debt at payoff. Seller-funded FHA money cannot revert to its provider or be refunded to the borrower in cash; borrower-funded FHA accounts have a cash-refund exception. Confirm servicing instructions.
• Compare matched Loan Estimates. Check the note rate, points and other fees with and without the temporary buydown. A builder incentive can have different pricing or lender conditions.

A Lendwise loan officer can confirm offered plans, eligibility, actual quotes and disclosures before you commit.

Common buydown questions