💰 2-1 vs 3-2-1 Buydown Calculator 2026
Which Saves MORE Money? Side-by-Side Comparison!
David Rodriguez
Refinance & Rate Specialist
12+ years helping homeowners save thousands through strategic rate buydowns and refinancing.
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⚡ Quick Answer (TL;DR)
2-1 Buydown: Best if you plan to sell/refinance in 2-3 years. Lower upfront cost ($4,200 avg). Saves $8,400 total.
3-2-1 Buydown: Best if you're staying 5+ years. Higher upfront cost ($6,300 avg). Saves $12,600 total + more breathing room.
💡 Pro Tip: Ask seller to pay buydown cost in negotiations - it's 100% legal and saves YOU thousands!
What Is a Mortgage Rate Buydown? (2-1 vs 3-2-1 Explained)
A mortgage rate buydown is a financing strategy where you (or the seller) pay an upfront fee to temporarily reduce your interest rate for the first 2-3 years of your loan. This creates lower monthly payments during the critical early years when cash flow is tightest.
There are two main types: 2-1 buydown and 3-2-1 buydown. Here's how they work:
📊 2-1 Buydown Structure
Example: If your note rate is 6.5%, you pay:
- • Year 1: 4.5% (6.5% - 2%)
- • Year 2: 5.5% (6.5% - 1%)
- • Year 3+: 6.5% (full rate)
📊 3-2-1 Buydown Structure
Example: If your note rate is 6.5%, you pay:
- • Year 1: 3.5% (6.5% - 3%)
- • Year 2: 4.5% (6.5% - 2%)
- • Year 3: 5.5% (6.5% - 1%)
- • Year 4+: 6.5% (full rate)
💰 Real Example: $400K Loan at 6.5% Rate
Let's compare the exact numbers for a $400,000 mortgage at 6.5% note rate with both buydown options:
| Period | No Buydown | 2-1 Buydown | 3-2-1 Buydown |
|---|---|---|---|
| Year 1 Rate | 6.5% | 4.5% | 3.5% |
| Year 1 Payment | $2,528/mo | $2,027/mo | $1,796/mo |
| Year 1 Savings | — | $501/mo ($6,012/yr) | $732/mo ($8,784/yr) |
| Year 2 Rate | 6.5% | 5.5% | 4.5% |
| Year 2 Payment | $2,528/mo | $2,271/mo | $2,027/mo |
| Year 2 Savings | — | $257/mo ($3,084/yr) | $501/mo ($6,012/yr) |
| Year 3 Rate | 6.5% | 6.5% | 5.5% |
| Year 3 Payment | $2,528/mo | $2,528/mo | $2,271/mo |
| Year 3 Savings | — | $0 | $257/mo ($3,084/yr) |
| TOTAL 3-Year Savings | — | $9,096 | $17,880 |
| Upfront Buydown Cost | $0 | -$4,200 | -$6,300 |
| NET Savings After Cost | $0 | $4,896 | $11,580 |
💡 Key Insight
The 3-2-1 buydown saves $6,684 MORE than the 2-1 buydown over 3 years ($11,580 vs $4,896). BUT it costs $2,100 more upfront ($6,300 vs $4,200). So you net an extra $4,584 in savings if you stay the full 3 years.
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🎯 When to Choose 2-1 Buydown vs 3-2-1 Buydown
✅ Choose 2-1 Buydown If:
- ✓You plan to sell or refinance within 2-3 years
- ✓You want lower upfront cost ($4,200 vs $6,300)
- ✓You expect rates to drop significantly in 2-3 years (refinance opportunity)
- ✓You're buying a starter home or investment property
- ✓Seller will only pay for 2-year buydown in negotiations
- ✓You need immediate cash flow relief but not long-term
💰 Best For:
Short-term homeowners, investors, or buyers expecting income increases in 2-3 years
✅ Choose 3-2-1 Buydown If:
- ✓You plan to stay 5+ years in the home
- ✓You want maximum payment relief in Year 1 ($732/mo savings)
- ✓You need 3 years to adjust to homeownership costs
- ✓You're buying your forever home
- ✓Seller agrees to pay the full 3-year buydown cost
- ✓You want to maximize total savings ($11,580 vs $4,896)
💰 Best For:
Long-term homeowners, families, or buyers who need extended payment relief
🔥 Seller-Paid Buydown: The SECRET Strategy
Here's the game-changer most buyers don't know: You can negotiate for the seller to pay the entire buydown cost as a seller concession. This is 100% legal and commonly done in buyer's markets or when sellers are motivated.
💎 How Seller-Paid Buydown Works
Step 1: Make Your Offer
Include in your purchase contract: "Seller to provide $6,300 seller concession for 3-2-1 mortgage rate buydown"
Step 2: Seller Agrees
Seller pays the $6,300 at closing as part of closing costs. You pay $0 out of pocket.
Step 3: You Save BIG
You get $17,880 in payment savings over 3 years for FREE. Seller effectively gave you a $17,880 discount!
🎯 Pro Negotiation Tip:
Instead of asking seller to reduce price by $10,000, ask them to pay $6,300 for a 3-2-1 buydown. You get $17,880 in value (2.8x more!) because the buydown reduces your payments over 3 years.
📊 Break-Even Analysis: When Does Each Buydown Pay Off?
The break-even point is when your total savings equal the upfront cost. Here's when each buydown pays for itself:
2-1 Buydown Break-Even
✅ You break even in less than 9 months. Everything after that is pure profit!
3-2-1 Buydown Break-Even
✅ You break even in less than 9 months. Years 2-3 are $9,096 in additional savings!
💡 Bottom Line
Both buydowns pay for themselves in under 9 months. If you stay even 1 full year, you're guaranteed to profit. The only way you lose is if you sell/refinance in the first 8 months (extremely rare).
⚠️ 5 Common Buydown Mistakes to AVOID
❌ Mistake #1: Not Asking Seller to Pay
The Problem: 73% of buyers pay buydown costs out of pocket when they could negotiate seller to pay.
The Fix: Always include seller-paid buydown in your initial offer. Worst case, they say no. Best case, you save $4,200-$6,300.
❌ Mistake #2: Choosing Wrong Buydown for Your Timeline
The Problem: Paying for 3-2-1 buydown when you're selling in 2 years = wasted $2,100.
The Fix: Honest assessment: Are you staying 3+ years? If not, stick with 2-1 buydown.
❌ Mistake #3: Forgetting About Payment Shock
The Problem: Year 1 payment is $1,796/mo. Year 4 payment jumps to $2,528/mo. That's a $732/mo increase!
The Fix: Budget for the FULL payment from Day 1. Save the difference during buydown years as an emergency fund.
❌ Mistake #4: Not Shopping Multiple Lenders
The Problem: Buydown costs vary by lender. One lender charges $6,300 for 3-2-1, another charges $5,800.
The Fix: Get buydown quotes from at least 3 lenders. Compare total cost, not just interest rate.
❌ Mistake #5: Ignoring Refinance Opportunity
The Problem: Rates drop to 4.5% in Year 2, but you're locked into 6.5% note rate for Years 3-30.
The Fix: Monitor rates during buydown period. If rates drop 0.75%+, refinance immediately to lock in lower rate permanently.
🚀 Ready to Save $10,000+ with a Buydown?
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❓ Frequently Asked Questions (FAQ)
Can I refinance during the buydown period?
Yes! You can refinance anytime during the buydown period. If rates drop significantly (0.75%+ lower), refinancing makes sense even if you lose remaining buydown benefits. Example: If you're in Year 2 of a 3-2-1 buydown at 4.5% temporary rate, but can refinance to 4.0% permanent rate, do it. You'll save more long-term.
What happens if I sell before the buydown period ends?
You don't get a refund on the unused portion of the buydown. Example: If you paid $6,300 for a 3-2-1 buydown but sell after 1 year, you lose the remaining $4,200 in benefits. This is why it's critical to choose the right buydown term for your expected timeline. If you're unsure, go with the 2-1 buydown.
Is a buydown better than paying discount points?
It depends on your timeline. Discount points permanently reduce your rate but cost more upfront (1 point = 1% of loan = $4,000 on $400K loan for 0.25% rate reduction). Buydowns are temporary but break even faster (8-9 months vs 3-5 years for points). Rule of thumb: If staying less than 5 years, buydown is better. If staying 10+ years, points are better.
Can I combine a buydown with other programs (FHA, VA, USDA)?
Yes! Buydowns work with FHA, VA, USDA, conventional, and jumbo loans. They're a financing strategy, not a loan type. You can even combine a buydown with down payment assistance programs. Example: Use a VA loan (0% down) + seller-paid 3-2-1 buydown = $0 down payment + ultra-low Year 1 payment.
How much does a buydown cost for different loan amounts?
Buydown costs scale with loan amount. Here are typical costs:
- • $200K loan: 2-1 = $2,100 | 3-2-1 = $3,150
- • $300K loan: 2-1 = $3,150 | 3-2-1 = $4,725
- • $400K loan: 2-1 = $4,200 | 3-2-1 = $6,300
- • $500K loan: 2-1 = $5,250 | 3-2-1 = $7,875
- • $600K loan: 2-1 = $6,300 | 3-2-1 = $9,450
Do all lenders offer buydowns?
Most do, but not all. About 85% of lenders offer temporary buydowns. Big banks (Wells Fargo, Chase, BofA) and online lenders (Rocket Mortgage, Better.com) typically offer them. Credit unions and small local lenders may not. Always ask upfront: "Do you offer 2-1 and 3-2-1 temporary buydowns?" If they say no, shop elsewhere.
Can I use gift money to pay for a buydown?
Yes! Gift money from family can be used to pay for a buydown, just like it can be used for down payment or closing costs. The donor must provide a gift letter stating the money is a gift, not a loan. This is a great strategy if parents want to help with monthly payments without giving ongoing cash.
What's the difference between a temporary buydown and a permanent buydown?
Temporary buydown (2-1, 3-2-1): Reduces rate for 2-3 years, then reverts to full note rate. Lower upfront cost, faster break-even. Permanent buydown (discount points): Reduces rate for entire 30-year loan. Higher upfront cost, longer break-even. Most buyers prefer temporary buydowns because they break even in under 1 year vs 3-5 years for permanent.
Is the buydown cost tax deductible?
No. Buydown costs are not tax deductible because they're considered prepaid interest, not mortgage interest. However, the interest you pay during the buydown period IS tax deductible (if you itemize). So while you can't deduct the $6,300 buydown cost, you can deduct the interest portion of your monthly payments.
Should I do a buydown if I expect rates to drop?
Yes, still do it! Here's why: Even if rates drop and you refinance in Year 2, you still got 12-24 months of reduced payments. Since buydowns break even in 8-9 months, you're profitable after just 1 year. Plus, if rates DON'T drop as expected (happens 60% of the time), you're protected with lower payments. It's a win-win strategy.
🎯 Final Verdict: Which Buydown Should YOU Choose?
Decision Framework:
Choose 2-1 Buydown If:
- ✓ You're selling/refinancing in 2-4 years
- ✓ You want lower upfront cost
- ✓ You expect significant income increase soon
- ✓ You're buying a starter home or investment property
💰 Net Savings: $4,896 over 2 years | Break-even: 8.4 months
Choose 3-2-1 Buydown If:
- ✓ You're staying 5+ years
- ✓ You want maximum Year 1 payment relief
- ✓ You need 3 years to adjust to homeownership
- ✓ You're buying your forever home
💰 Net Savings: $11,580 over 3 years | Break-even: 8.6 months
BEST Strategy (Seller-Paid):
Negotiate seller to pay the FULL buydown cost. This gives you $9,096-$17,880 in payment savings for $0 out of pocket. It's the ultimate win-win.
💎 Pro Tip: Offer asking price if seller pays for 3-2-1 buydown. They feel like they got full price, you get $17,880 in value!
⚡ Action Steps (Do This NOW):
- Get quotes from 3+ lenders for BOTH 2-1 and 3-2-1 buydowns
- Calculate your exact savings based on your loan amount
- Decide which buydown fits your timeline (2-3 years vs 5+ years)
- Include seller-paid buydown in your purchase offer
- Budget for full payment from Day 1 (save the difference)
- Monitor rates during buydown period for refinance opportunity