Buy-Down Rate Calculator
A rate buydown trades cash at closing for lower mortgage payments. The trade is only good if you keep the loan long enough, or if someone else funds it. This buy-down rate calculator tests both kinds with the same inputs: permanent buydowns bought with discount points, and temporary buydowns in their flat, 2-1 graduated and 3-2-1 step-down shapes. It returns the payment at both rates, the monthly savings, the break-even month, the net benefit over your expected hold period, the net present value, and, for temporary buydowns, whether your seller or lender credits actually cover the subsidy.
The worked example below is a $400,000 loan at 7% bought down to 6.5% for 1.5 points. Every figure in it is the figure the tool returns for those inputs.
Payments are principal and interest only. A temporary buydown does not change your note rate or help you qualify for a larger loan: lenders qualify you at the full note-rate payment. Points pricing varies by lender and day; the rate reduction per point is whatever your lender quotes, not a fixed quarter point.
Quick Answer
Key takeaways
- Permanent and temporary buydowns are different products sharing a name. Points lower the rate for the life of the loan; a temporary buydown only subsidizes the first one to three years of payments.
- Break-even is the whole decision for points: upfront cost divided by monthly savings. Sell or refinance before that month and the points lose money.
- A temporary buydown costs exactly the sum of the payment gaps it covers. That subsidy has to be funded at closing, usually by the seller or builder, and this tool checks whether the credits on offer cover it.
- Lenders qualify you at the note rate, not the bought-down rate, under Fannie Mae’s buydown rules. A temporary buydown never stretches how much you can borrow.
- Quick Answer
- The four buydown shapes this calculator models
- The formulas behind the outputs
- Worked example: permanent points on a $400,000 loan
- The same loan as a 2-1: subsidy and credit coverage
- How this calculator handles the awkward cases
- What competing calculators miss
- Frequently Asked Questions
- Add This Calculator to Your Website
- References
The four buydown shapes this calculator models
Pick the type first, because the inputs change meaning with it. The Consumer Financial Protection Bureau describes the permanent version plainly in its guidance on choosing a loan type: points are upfront charges paid for a lower rate, and one point equals 1 percent of the loan amount. Temporary buydowns work differently: the note rate never changes, and a funded account covers part of each early payment.
| Type (tool label) | Rate pattern | Cost basis | Usually funded by |
|---|---|---|---|
| Permanent Buy-Down | Bought-down rate for the full term | Points: percent of loan, plus any extra closing costs | Borrower (sometimes seller credits) |
| Temporary Buy-Down | One flat reduced rate for the period you set (the 1-0 shape when the period is 1 year) | Subsidy: monthly savings × period months | Seller, builder, or lender credit |
| Graduated Buy-Down (2-1) | Note rate minus 2 in year one, minus 1 in year two | Subsidy: the two years of payment gaps | Seller or builder |
| Step-Down Buy-Down (3-2-1) | Note rate minus 3, then 2, then 1 across three years | Subsidy: the three years of payment gaps | Builder or seller |
For the two stepped types, the tool computes total savings and the subsidy from the fixed step pattern off your note rate. Enter the year-one rate in the bought-down rate field (note rate minus 2 for a 2-1, minus 3 for a 3-2-1) so the displayed bought-down payment and monthly savings describe year one correctly. Before any of this matters, the home itself has to fit your income: the buy a home calculator sets that ceiling first.
The formulas behind the outputs
Two of these deserve a second look. Break-even ignores the time value of money, which is why the NPV line exists beside it: a buydown can pass break-even and still fail NPV at a high discount rate. And the subsidy formula is an identity, not a bargain: a temporary buydown saves you exactly the money someone deposited, no more. Its value is timing (lower payments while income ramps up) and other people’s money (a seller credit that could not be taken as a price cut), not arbitrage.
Worked example: permanent points on a $400,000 loan
The calculator is pre-filled with this case, and the table is its exact output: $400,000 at 7% over 30 years, bought down to 6.5% for 1.5 points, no extra closing costs, a 7-year expected hold, and a 5% discount rate.
| Output | Value |
|---|---|
| Rate reduction | 0.500 |
| Original monthly payment | 2661.21 |
| Bought-down monthly payment | 2528.27 |
| Monthly savings | 132.94 |
| Total cost of buydown (1.5 points) | 6000.00 |
| Total savings over the full term | 47857.64 |
| Break-even point | 46 months |
| Net benefit over a 7-year hold | 5166.78 |
| NPV at a 5% discount rate | 3405.60 |
Read the three verdict numbers together. Break-even at 46 months says the $6,000 is earned back during year four. The 7-year net benefit ($5,166.78) counts only the savings inside the hold period, which is the honest figure if you expect to move or refinance around then. The full-term savings of $47,857.64 are real only if the loan survives 30 years, which most do not. NPV splits the difference properly by discounting: $3,405.60 of value in today’s dollars at a 5% opportunity cost.
The same loan as a 2-1: subsidy and credit coverage
Switch the type to Graduated Buy-Down (2-1), set the bought-down rate to 5 (the year-one rate), the period to 2 years, and points to 0. The tool now prices the step pattern off the 7% note rate.
| Temporary shape (same $400,000 loan at 7%) | Year payments | Subsidy required |
|---|---|---|
| 1-0 (Temporary, bought rate 6%, period 1 year) | $2,398.20 | 3156.09 |
| 2-1 (Graduated) | $2,147.29, then $2,398.20 | 9323.18 |
| 3-2-1 (Step-Down) | $1,909.66, then $2,147.29, then $2,398.20 | 18341.76 |
For the 2-1, enter a $10,000 seller credit and the coverage line reads “Covered: credits of $10000.00 meet the $9323.18 subsidy”, with out-of-pocket cost 0.00. Cut the credit to $5,000 and it reads “Short by $4323.18”, and that shortfall lands in your out-of-pocket cost. This is the negotiation number: it tells you, before closing, whether the seller’s buydown offer is fully funded or quietly part-funded by you. Sellers offering credits instead of price cuts are common when someone is moving and selling at the same time; the buy sell mortgage calculator plans that side of the move.
How this calculator handles the awkward cases
Four behaviors are worth knowing before you quote its numbers, because each is a modeling choice, not a bug.
NPV needs both optional inputs. The NPV row appears only when a discount rate above 0 and an expected hold period are both entered. Leave either out and the row stays hidden, because an NPV over an unstated horizon would be invented precision.
Net benefit respects the buydown window. With a hold period entered, net benefit equals the flat monthly savings times the shorter of the hold months and the buydown period months, minus upfront cost. For a permanent buydown, set the buydown period to the full loan term (as the pre-filled example does), or the window understates your savings.
Break-even runs at the bought-down rate’s pace. Break-even divides total cost by the monthly savings at the bought-down rate you entered. For stepped buydowns that is the year-one pace, so treat break-even as exact for permanent and flat temporary buydowns, and approximate for 2-1 and 3-2-1 shapes. When the upfront cost is 0 because a seller funds the subsidy, break-even shows 0: there is nothing to earn back.
Qualification is at the note rate. Fannie Mae’s Selling Guide limits temporary buydowns to a 3-point reduction over at most 3 years with increases of no more than 1 point a year, and requires qualifying the borrower at the note rate, as set out in the Fannie Mae Selling Guide. A buydown makes early payments cheaper; it does not make you eligible for a bigger loan.
Permanent points fit when
- You expect to keep this loan well past break-even (46 months in the example)
- Refinancing soon looks unlikely
- The cash is genuinely spare after down payment and reserves
A temporary buydown fits when
- The seller or builder is funding it, and the credit covers the subsidy
- Your income is likely to rise before the payment steps up
- You expect to refinance, and want relief only until then
One more comparison buyers ask about: a buydown against an adjustable-rate loan. An ARM lowers the early rate by taking interest-rate risk for the whole loan, while a temporary buydown keeps a fixed note rate and prepaid relief. The 10-year adjustable rate mortgage calculator prices the ARM side of that choice.
What competing calculators miss
Miss 1: half the product range. Single-purpose tools, such as Calculator Academy’s 2/1 calculator, model temporary buydowns only: no points, no break-even, no permanent case. Lender-side tools that do show 3-2-1, 2-1 and 1-0 payment tables stop at the table, so you learn the payments but never whether the deal pays.
Miss 2: no credit coverage check. The strongest rival, Brave Calculator, adds NPV and ROI for the permanent case and a subsidy figure for temporary buydowns. It does not compare your actual seller and lender credits against the required subsidy and name the shortfall. That check is the difference between a buydown that works on paper and one that survives closing.
Miss 3: NPV missing or unexplained. Break-even alone overstates slow paybacks because it treats a dollar in year seven as a dollar today. This tool discounts the actual savings stream for whichever buydown type you picked, and tells you plainly when the NPV row is absent and why.
Frequently Asked Questions
A buydown lowers your mortgage interest rate in exchange for money paid upfront. A permanent buydown (discount points) cuts the rate for the entire loan term; a temporary buydown (2-1, 3-2-1, or 1-0) cuts it for the first one to three years, then the payment steps back up to the note rate.
Divide the upfront cost by the monthly savings. Paying $6,000 to save $132.94 a month breaks even in 46 months in this calculator, which rounds up. If you sell or refinance before break-even, the points were a bad deal.
It depends on your time horizon and who is paying. Permanent points win if you keep the loan well past break-even. A temporary buydown wins if you want lower payments now, expect to refinance soon, or have seller credits funding it that cannot reduce the price further.
Usually the seller or the lender, through credits deposited into a buydown escrow at closing; sometimes the borrower pays. The calculator compares your entered credits against the required subsidy and tells you if there is a shortfall: on the 2-1 example, a $10,000 credit covers the $9,323.18 subsidy, while a $5,000 credit leaves you $4,323.18 short.
A temporary buydown where the rate is 3 percentage points below the note rate in year one, 2 points below in year two, 1 point below in year three, then returns to the note rate. On the $400,000 loan at 7% used here, the payments are $1,909.66, $2,147.29 and $2,398.20, and the subsidy to fund is $18,341.76. Builders often fund these as sales incentives on new construction.
Sometimes. Points paid on a purchase mortgage for your primary residence are often deductible in the year paid if you itemize; points on a refinance are usually deducted over the loan term. Seller-paid points have their own treatment. Tax rules vary, so confirm with a tax professional.
Usually not. Refinancing ends the benefit of the points, so you rarely pass break-even. A temporary buydown, or no buydown at all, is typically the better choice when a refinance is likely. Check the break-even month against your realistic refinance date, not your hoped-for one.
Use your opportunity cost: the after-tax return you could earn on the money instead, such as a savings rate or expected investment return. A higher discount rate makes future savings worth less today, which makes the buydown look worse. At 5%, the worked example’s NPV is $3,405.60.
NPV is only computed when both a discount rate above zero and an expected hold period are entered, because it discounts a specific stream of savings over a specific horizon. Without a hold period the tool will not invent one. Enter both and the row appears with the discounted value minus your upfront cost.
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References
- Consumer Financial Protection Bureau, “Select the Kind of Loan That Fits Your Needs” – points and lender credits explained, with the advice to compare offers over the time you expect to keep the loan. CFPB: Select the Kind of Loan That Fits Your Needs. Accessed October 2026.
- Fannie Mae, “Selling Guide” – the temporary interest rate buydown terms: maximum 3-point reduction, maximum 3-year period, increases of no more than 1 percent a year, and qualification at the note rate. Fannie Mae Selling Guide (PDF). Accessed October 2026.
- LegalClarity, “How Does a Buydown Work? Types, Costs, and Tax Rules” – permanent versus temporary buydown mechanics, qualifying standards, and the tax treatment of points. LegalClarity: How a Mortgage Buydown Works. Accessed October 2026.
- LegalClarity, “What Are Discount Points on a Mortgage” – how points appear on the Loan Estimate and Closing Disclosure, and how the rate reduction per point varies by lender. LegalClarity: Discount Points on a Mortgage. Accessed October 2026.
- National House Search, “Mortgage Rate Buydown: Permanent vs. Temporary Explained” – worked payment tables for both buydown kinds at Freddie Mac survey rates, with the note-rate qualification warning. National House Search: Permanent vs Temporary Buydowns. Accessed October 2026.