Mortgage Rate Buydown Calculator 2026: Temporary vs Permanent
🆚 Temporary vs Permanent Buydown: The Key Difference
Temporary Buydown (2-1, 3-2-1): Seller/builder pays to reduce your rate for 1-3 years, then rate jumps to original rate. Lower upfront cost ($3K-$8K), but temporary savings.
Permanent Buydown (Discount Points): YOU pay upfront to reduce rate for entire 30-year loan. Higher upfront cost ($4K-$12K), but permanent savings of $40K-$80K+ over loan life.
Trying to decide between a temporary buydown (2-1 or 3-2-1) and a permanent buydown (discount points)? This calculator and guide will show you EXACTLY which option saves you more money.
According to Freddie Mac (January 2026), buydowns are at an all-time high with 34% of new purchase loans using some form of rate buydown. Choosing the RIGHT buydown strategy can save you $40,000-$80,000+ over your loan term. Smart buyers compare multiple lenders to find the best buydown offers.
📊 Quick Comparison: Temporary vs Permanent Buydown
| Feature | Temporary (2-1 or 3-2-1) | Permanent (Points) |
|---|---|---|
| Duration | 1-3 years | Entire 30-year loan |
| Who Pays | Usually seller/builder | Buyer pays upfront |
| Upfront Cost | $3,000-$8,000 | $4,000-$12,000 |
| Rate Reduction | 1-3% for 1-3 years | 0.25%-1.00% permanently |
| Total Savings | $10,000-$25,000 | $40,000-$80,000+ |
| Break-Even | Immediate (seller pays) | 3-7 years |
| Best For | Short-term ownership (3-5 years) | Long-term ownership (7+ years) |
🧮 Calculate Your Buydown Savings
Compare lenders offering temporary and permanent buydowns. Get personalized quotes and calculate which option saves you more money.
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📊 2-1 Buydown: Complete Month-by-Month Breakdown
How 2-1 Buydown Works: $400K Loan Example
| Period | Rate | Monthly Payment | Monthly Savings | Annual Savings |
|---|---|---|---|---|
| Year 1 (Months 1-12) | 5.00% | $2,147 | $440 | $5,280 |
| Year 2 (Months 13-24) | 6.00% | $2,367 | $220 | $2,640 |
| Year 3+ (Month 25+) | 7.00% | $2,587 | $0 | $0 |
| TOTAL 2-YEAR SAVINGS | $7,920 | |||
💰 Cost to Seller/Builder
Seller pays $7,920 upfront (deposited into escrow account). Lender withdraws monthly subsidy to cover payment difference. After 24 months, escrow account is depleted and buyer pays full 7% rate. Many buyers then refinance to a lower rate before the buydown expires.
✅ Best For
Buyers who: (1) Need lower payments first 2 years, (2) Expect income to increase, (3) Plan to refinance within 3-5 years, (4) Are buying new construction with builder incentives, (5) Want seller to pay closing costs via buydown. Before accepting a buydown, compare rates from multiple lenders to ensure you're getting the best deal.
📈 3-2-1 Buydown: Complete Month-by-Month Breakdown
How 3-2-1 Buydown Works: $400K Loan Example
| Period | Rate | Monthly Payment | Monthly Savings | Annual Savings |
|---|---|---|---|---|
| Year 1 (Months 1-12) | 4.00% | $1,927 | $660 | $7,920 |
| Year 2 (Months 13-24) | 5.00% | $2,147 | $440 | $5,280 |
| Year 3 (Months 25-36) | 6.00% | $2,367 | $220 | $2,640 |
| Year 4+ (Month 37+) | 7.00% | $2,587 | $0 | $0 |
| TOTAL 3-YEAR SAVINGS | $15,840 | |||
💰 Cost to Seller/Builder
Seller pays $15,840 upfront (deposited into escrow account). Lender withdraws monthly subsidy: $660/month Year 1, $440/month Year 2, $220/month Year 3. After 36 months, buyer pays full 7% rate. Strategic buyers get pre-approved to understand their buydown options upfront.
✅ Best For
New construction buyers with builder incentives. Buyers expecting significant income growth (promotions, bonuses). Those who need ultra-low payments first year to qualify. Buyers planning to refinance within 5 years when rates drop. To maximize savings, shop multiple lenders for the best buydown terms.
🎯 Permanent Buydown (Discount Points): Complete Analysis
How Permanent Buydown Works: $400K Loan Example
| Points Paid | Upfront Cost | Rate Reduction | New Rate | Monthly Payment | Monthly Savings |
|---|---|---|---|---|---|
| 0 Points (Baseline) | $0 | 0.00% | 7.00% | $2,587 | $0 |
| 1 Point | $4,000 | 0.25% | 6.75% | $2,521 | $66 |
| 2 Points | $8,000 | 0.50% | 6.50% | $2,456 | $131 |
| 3 Points | $12,000 | 0.75% | 6.25% | $2,392 | $195 |
| 4 Points | $16,000 | 1.00% | 6.00% | $2,329 | $258 |
📊 Break-Even Analysis
- • 1 Point ($4,000): Break-even in 61 months (5.1 years) | 30-year savings: $19,760
- • 2 Points ($8,000): Break-even in 61 months (5.1 years) | 30-year savings: $39,160
- • 3 Points ($12,000): Break-even in 62 months (5.2 years) | 30-year savings: $58,200
- • 4 Points ($16,000): Break-even in 62 months (5.2 years) | 30-year savings: $76,880
✅ Best For
Buyers planning to stay 7+ years. Those with cash for upfront costs. Buyers who want lowest possible payment for 30 years. Those who won't refinance (rates unlikely to drop significantly). Buyers maximizing tax deductions (points are deductible). Even with points, it's smart to compare lender pricing to ensure you're not overpaying.
⚖️ Temporary vs Permanent: 10 Real Scenarios
Scenario 1: First-Time Buyer, Tight Budget, Seller Pays
Situation: $400K home, 7% rate, seller offers $8,000 closing credit, tight monthly budget first 2 years.
Best Choice: 2-1 Temporary Buydown ($7,920 cost)
Why: Seller pays, so FREE to you. Saves $440/month Year 1, $220/month Year 2. Gives breathing room while you build emergency fund and increase income. After 2 years, income likely higher to afford full payment. Before Year 3, shop for refinance rates to avoid the payment jump.
Scenario 2: Forever Home, 30-Year Stay, Have Cash
Situation: $500K home, 7% rate, plan to stay 30 years, have $20K cash for closing costs.
Best Choice: 3 Points Permanent Buydown ($15,000 cost)
Why: Reduces rate to 6.25%, saves $244/month for 30 years = $87,840 total savings. Break-even in 5.1 years. Since staying 30 years, you capture full $87,840 benefit. Best long-term value. Still, compare point pricing across lenders to maximize your savings.
Scenario 3: New Construction, Builder Incentive, 5-Year Plan
Situation: $450K new build, builder offers $15K incentive, plan to upgrade in 5 years.
Best Choice: 3-2-1 Temporary Buydown ($15,840 cost)
Why: Builder pays, so FREE. Saves $15,840 over 3 years. Since selling in 5 years, won't capture long-term permanent buydown benefits. Temporary maximizes short-term savings.
Scenario 4: Expecting Income Increase, Medical Resident
Situation: $350K home, medical resident earning $60K now, will earn $250K+ in 3 years.
Best Choice: 3-2-1 Temporary Buydown (negotiate seller to pay)
Why: Need low payments NOW during residency. Income will 4x in 3 years, making full payment easy. Temporary buydown bridges income gap. Can refinance or pay extra principal once attending.
Scenario 5: Rates Expected to Drop, Refinance Likely
Situation: $400K home, 7% rate, Fed expected to cut rates 1-2% within 2 years.
Best Choice: 2-1 Temporary Buydown (if seller pays) or NO buydown
Why: If refinancing in 2 years, permanent buydown break-even (5+ years) won't be reached. Temporary buydown gives short-term relief until refinance. Or skip buydown entirely and refinance ASAP when rates drop.
Scenario 6: Investment Property, Tax Benefits Matter
Situation: $500K rental property, 7.5% rate, high tax bracket, want to maximize deductions.
Best Choice: 4 Points Permanent Buydown ($20,000 cost)
Why: Points are tax deductible (amortized over loan life for investment property). Reduces rate to 6.5%, lowers monthly payment = higher cash flow. Tax benefit + cash flow + long-term savings = triple win.
❓ Frequently Asked Questions
What's the difference between temporary and permanent rate buydown?
Temporary buydown (2-1, 3-2-1): Reduces rate for 1-3 years, then jumps to original rate. Usually paid by seller/builder ($3K-$8K). Permanent buydown (points): Reduces rate for entire 30-year loan. Paid by buyer upfront ($4K-$12K). Permanent saves more long-term ($40K-$80K+).
Is a 2-1 or 3-2-1 buydown worth it?
Yes, if seller/builder pays! 2-1 buydown saves $10K-$15K over 2 years. 3-2-1 saves $15K-$25K over 3 years. Since seller pays, it's FREE money. However, if YOU pay, permanent buydown is usually better long-term. Only choose temporary if you plan to sell/refinance within 3-5 years.
How much does a 2-1 buydown cost?
2-1 buydown costs $3,000-$6,000 depending on loan amount. Example: $400K loan at 7% → Year 1 at 5% (save $5,280), Year 2 at 6% (save $2,640) = $7,920 total savings. Cost to seller: $5,280 + $2,640 = $7,920 (exact savings amount). Break-even: immediate if seller pays.
How much does a 3-2-1 buydown cost?
3-2-1 buydown costs $5,000-$10,000 depending on loan amount. Example: $400K loan at 7% → Year 1 at 4% (save $7,920), Year 2 at 5% (save $5,280), Year 3 at 6% (save $2,640) = $15,840 total savings. Cost to seller: $15,840. Best for new construction with builder incentives.
Should I buy discount points or do a temporary buydown?
Buy points if you're staying 7+ years. Permanent buydown saves $40K-$80K+ over 30 years with 3-7 year break-even. Temporary buydown saves $10K-$25K over 1-3 years but rate jumps. Choose temporary if: (1) seller pays, (2) you'll sell/refinance within 5 years, or (3) you expect income to increase significantly.
Can I refinance during a temporary buydown?
Yes, but you lose remaining buydown benefits. If you refinance during Year 1 of 2-1 buydown, you forfeit Year 2 savings. However, if rates drop significantly (1%+), refinancing may still save more. Calculate: (new rate savings over 30 years) minus (lost buydown savings) = net benefit.
What happens after a 2-1 or 3-2-1 buydown ends?
Your rate jumps to the original note rate. Example: 2-1 buydown on 7% loan → Year 1 at 5%, Year 2 at 6%, Year 3+ at 7%. Your payment increases $264/month (Year 1→2) and $264/month (Year 2→3) on $400K loan. Plan ahead: save the payment difference or refinance before buydown ends.
Are buydown costs tax deductible?
Permanent buydown (points): Yes, if you itemize. Deduct points paid in year of purchase if: (1) loan for primary residence, (2) points are % of principal, (3) common practice in your area. Temporary buydown: No. Seller-paid buydown has no tax benefit to buyer since you didn't pay it.
Can seller pay for permanent buydown (discount points)?
Yes! Seller can pay up to 6% of purchase price in concessions, which can cover discount points. This is BETTER than temporary buydown because you get permanent rate reduction. Negotiate: "Seller pays 2 points to buy down rate" instead of "Seller pays for 2-1 buydown." Saves you $40K-$60K more over loan life.
Which buydown is best in 2026?
Depends on your situation: (1) Seller pays + short-term: 2-1 or 3-2-1 buydown. (2) Seller pays + long-term: Negotiate seller-paid permanent points. (3) You pay + long-term: Permanent buydown (points). (4) You pay + short-term: No buydown, keep cash for other investments. With 2026 rates at 6.5-7%, permanent buydowns have 4-6 year break-even.
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