3-2-1 Mortgage Buydown Calculator 2025: Free Tool + Complete Guide
Calculate your 3-2-1 buydown savings, costs, and break-even analysis. Complete guide to temporary buydown programs and strategies for 2025.
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Compare Buydown Offers →What is a 3-2-1 Mortgage Buydown?
A 3-2-1 mortgage buydown is a temporary interest rate reduction program that lowers your monthly mortgage payments for the first three years of your loan. The "3-2-1" refers to the percentage points your rate is reduced each year.
How the 3-2-1 Buydown Works
3-2-1 Buydown Example
| Year | Interest Rate | Monthly Payment | Monthly Savings |
|---|---|---|---|
| 1 | 4.00% | $1,910 | $751 |
| 2 | 5.00% | $2,147 | $514 |
| 3 | 6.00% | $2,398 | $263 |
| 4-30 | 7.00% | $2,661 | $0 |
Who Pays for a 3-2-1 Buydown?
👤 Buyer-Paid Buydown
- • Buyer pays buydown cost at closing
- • Reduces monthly payments for 3 years
- • Good if you expect income to increase
- • Can use gift funds or savings
🏠 Seller-Paid Buydown
- • Seller pays buydown as sales incentive
- • No upfront cost to buyer
- • Common in buyer's markets
- • May be negotiated in purchase contract
🏗️ Builder-Paid Buydown
- • Builder offers as sales incentive
- • Common in new construction
- • May be part of promotional package
- • Often combined with other incentives
🏦 Lender-Paid Buydown
- • Lender pays in exchange for higher rate
- • No upfront cost to buyer
- • Rate may be slightly higher after year 3
- • Less common than other options
Is a 3-2-1 Buydown Worth It?
✅ When It Makes Sense
- ✓Someone else pays: Seller, builder, or lender covers the cost
- ✓Income will increase: Expect salary growth over 3 years
- ✓Plan to refinance: Rates expected to drop within 3-5 years
- ✓Tight budget initially: Need lower payments to qualify
❌ When to Avoid
- ✗Stable income: No expected income growth
- ✗Long-term stay: Plan to keep loan for 10+ years
- ✗Payment shock risk: Can't afford full payment in year 4
- ✗Rising rate environment: Refinancing unlikely
Frequently Asked Questions
What is a 3-2-1 mortgage buydown?
A 3-2-1 mortgage buydown is a temporary rate reduction program where your interest rate is reduced by 3% in year 1, 2% in year 2, and 1% in year 3, then returns to the original rate for the remaining loan term. This creates lower monthly payments during the first three years.
How much does a 3-2-1 buydown cost?
The cost of a 3-2-1 buydown equals the total payment savings over the three years. For a $400,000 loan at 7%, the buydown typically costs around $19,000-$22,000, depending on the exact terms and loan amount.
Who pays for a 3-2-1 buydown?
A 3-2-1 buydown can be paid by the buyer, seller, builder, or lender. Often, sellers or builders offer to pay for buydowns as an incentive to attract buyers, especially in competitive markets or new construction.
Is a 3-2-1 buydown worth it?
A 3-2-1 buydown is worth it if you expect your income to increase over time, plan to refinance within 3-5 years, or if someone else (seller/builder) is paying for it. Calculate the total cost versus your expected savings to determine if it makes financial sense.
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