MortgagePaymentTools

Temporary Buydown Calculator

Price a 2-1 or 1-0 temporary rate buydown: the payment in each subsidised year, the step-ups, and what the subsidy costs.

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A temporary buydown lowers the payment for the first year or two by placing a lump sum in an escrow account that tops up each payment. The note rate does not change. The loan is underwritten at the full rate, and when the subsidy runs out the payment steps up to what it was always going to be.

That is not a criticism - a seller-funded buydown is a genuine concession with real value, and it can bridge a period when a borrower expects income to rise or rates to fall. It is a criticism of how it is sometimes presented, which is as a lower rate. This calculator shows all three payments so the step-up is visible before signing rather than after.

Your numbers

Results update as you type. Nothing is sent anywhere.

Result

Year one payment

$2,087

Year two payment
$2,334
Payment from year three
$2,594
Step-up into year two
$248
Step-up into year three
$260
Year one subsidy
$6,094
Year two subsidy
$3,121
Total subsidy funded
$9,215
Subsidy as a share of the loan
2.3%

A temporary buydown does not change the note rate. The loan is underwritten at the full rate, the subsidy sits in an escrow account funded up front, and the payment steps up to the note payment when it runs out.

The subsidy is normally funded by the seller or the builder as a concession. When the buyer funds it, it is simply prepaying part of their own interest.

If the loan is refinanced or repaid during the buydown period, unused subsidy is generally credited to the balance rather than lost - confirm this in the buydown agreement.

This is an estimate based on the figures you entered. Actual terms, fees and eligibility are set by the lender.

How to use the temporary buydown calculator

  1. Enter the loan amount, the note rate and the term.
  2. Enter the rate reduction in the first year and in the second - a 2-1 buydown is 2 and 1, a 1-0 buydown is 1 and 0.
  3. Read the payment in each period and the step-ups between them.
  4. Check the total subsidy cost against the concession being offered.

What people use this for

  • Checking what the payment becomes when a seller-funded buydown expires.
  • Comparing a buydown concession against the same money applied to the price.
  • Valuing a builder incentive in dollars rather than in marketing terms.
  • Planning for the step-up date so it is not a surprise.

Worked examples

Every figure below is produced by running this calculator against the example inputs, so the numbers always match the tool.

A 2-1 buydown on a mid-size loan

$400,000 at 6.75% over 30 years, reduced 2% in year one and 1% in year two.

Year one payment
$2,087
Payment from year three
$2,594
Total subsidy funded
$9,215

A 1-0 buydown

$300,000 at 6.25% over 30 years, reduced 1% in the first year only.

Year one payment
$1,657
Step-up into year two
$191
Total subsidy funded
$2,286

The rate on the note is the rate you owe

Everything in the loan file - the qualifying payment, the balance, the amortisation - uses the note rate. The buydown is a separate escrow that supplements each payment for a fixed period. When it is exhausted, nothing about the loan has changed.

This matters because a borrower who can only afford the year-one payment is a borrower who cannot afford the loan. Underwriting at the note rate exists precisely to prevent that.

Concession as a buydown or concession off the price

The same seller money can fund a buydown or reduce the purchase price. A price reduction lowers the loan permanently and lowers the payment for the whole term, though by a smaller monthly amount. A buydown gives a much larger reduction for a short period and then stops.

Neither is universally better. A borrower expecting a specific income increase, or planning to refinance, may reasonably prefer the front-loaded version. A borrower staying put for twenty years generally will not.

What happens if you refinance during the buydown

Unused subsidy sitting in the escrow account does not usually vanish. It is typically applied to the loan balance at payoff, which means the concession is not entirely wasted if you refinance early.

Typically is not always. The buydown agreement states what happens, and it is worth reading that clause before relying on it.

Methodology and assumptions

What this calculator does, and what it deliberately does not do.

  • Each payment is the standard amortised payment on the full loan amount and term, calculated at the reduced rate for the relevant year.
  • The subsidy cost is the sum of the monthly differences between the note payment and each reduced payment across the buydown period.
  • The calculation assumes a standard structure where the reduction applies for full twelve-month periods.
  • It does not model interest earned on the escrowed subsidy or lender-specific administration of the account.
  • Results are estimates. Real quotes depend on credit, income, property, loan programme and lender pricing at the time of application.
  • Nothing you type is transmitted or stored - the calculation runs entirely inside your browser.

This calculator is provided for informational and educational purposes only. Results are estimates and may not reflect actual rates, fees, taxes, or market conditions.

This website is not a lender, a mortgage broker or a financial adviser. It does not originate loans, does not accept applications and does not forward your details to anyone.

Actual loan terms depend on credit history, income, the property, the loan programme and lender pricing at the time of application. Only a lender can tell you what you qualify for.

Frequently asked questions

Am I qualified on the lower payment?

No. Underwriting uses the note rate payment. The buydown affects what you pay in the early years, not what you must be able to afford.

Who normally pays for a buydown?

Most often a seller or a builder, as a concession. A lender may also offer one. A borrower can fund it themselves, which amounts to prepaying part of their own interest.

Is this the same as buying points?

No. Points permanently reduce the note rate for the life of the loan. A temporary buydown does not change the note rate at all.

What if I cannot afford the payment after the step-up?

That is the risk of treating the year-one payment as the real payment. The step-up date is known from the start, and it should be planned for from the start.

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