About the Mortgage Buydown Calculator
This mortgage buydown calculator prices a temporary rate buydown. In a 2-1 buydown, your rate is 2 points below the note rate in year one and 1 point below in year two, then returns to the note rate for the rest of the loan. A 3-2-1 buydown adds a third reduced year; a 1-0 lowers only the first year. The subsidy that covers the difference is paid upfront into an escrow account, often by the seller or builder as a concession.
Enter the loan amount, note rate and buydown type to see each year’s reduced payment, how much you save per month, and the total cost of the buydown — the amount a seller would need to fund. It helps buyers compare a buydown with a price cut and helps agents structure concessions.
The cost is calculated the standard way: the sum of the monthly payment differences during the buydown years, with payments computed on the original loan amount. Some lenders round or discount slightly differently, so confirm the final figure on your Loan Estimate.
With the default inputs, the buydown cost (subsidy) is $9,214.85. Change any value above to recalculate instantly.
How to use the mortgage buydown calculator
- 1Enter the loan amount and the note (permanent) rate.
- 2Choose the loan term.
- 3Pick the buydown type — 2-1 is the most common.
- 4Read the total cost and each year’s reduced payment.
- 5Compare the cost with an equal price reduction or permanent points.
Formula and method
M(r) is the principal-and-interest payment on the full loan amount at rate r over the full term, using the standard amortization formula. For each buydown year k the rate is reduced by s_k percentage points (for a 2-1: 2 then 1). The monthly savings in that year is the difference between the full payment and the reduced payment.
The total buydown cost equals twelve months of savings for each buydown year, added together. That amount is deposited in a buydown escrow account at closing and drawn each month to make up the difference.
- M(r)
- Monthly P&I payment at rate r
- s_k
- Rate reduction in buydown year k
Worked examples
2-1 buydown on $400k at 6.75%
The full payment at 6.75% is $2,594.39. In year one the rate is 4.75%, so the payment is $2,086.59, saving $507.80 a month. Year two at 5.75% saves $260.10 a month. Twelve months of each adds up to a $9,214.85 subsidy, about 2.3% of the loan.
3-2-1 buydown on $350k at 7%
Starting at 4% in year one cuts the payment from $2,328.56 to $1,670.95. With two more reduced years (5% and 6%), the subsidy totals about $16,049 — 4.6% of the loan.
1-0 buydown on $500k at 6.5%
Dropping the first-year rate to 5.5% saves $321.40 a month for 12 months, so the buydown costs about $3,857.
Frequently asked questions
How does a 2-1 buydown work?+
Your interest rate is 2 percentage points below the note rate in year one and 1 point below in year two, then stays at the note rate. Someone — usually the seller or builder — prepays the difference into an escrow account at closing.
How much does a 2-1 buydown cost?+
It costs the total payment savings over the two years. On a $400,000 30-year loan at 6.75%, that is roughly $9,200, or about 2.3% of the loan amount.
Is a temporary buydown better than a price reduction?+
A buydown lowers payments early, which helps cash flow. A price cut lowers the loan and payment permanently. If you plan to refinance soon a buydown can be attractive; for a long hold, a price cut or permanent points may be worth more.
What happens to unused buydown funds if I refinance?+
Under typical Fannie Mae and Freddie Mac rules, unused funds in the buydown account are credited toward the loan balance or refunded when the loan is refinanced or paid off. Check your buydown agreement.
Do I qualify at the bought-down rate?+
Usually not. Lenders generally qualify conventional borrowers at the full note-rate payment, so you need enough income to handle the payment after the buydown ends.
Results are estimates for educational purposes and are not financial advice. Rates, fees and terms vary — confirm with your lender or a licensed advisor before making decisions.