Guide · Homebuying
2-1 buydown: how it works and what it costs
A 2-1 buydown lowers your mortgage payment for the first two years. Here is exactly how much it saves, who pays for it, and when a price cut or points would serve you better.
By the CalcLedger editorial team · Updated September 2026 · 4 min read · Examples use illustrative rates · How we calculate
On this page
Key takeaways
- A 2-1 buydown lowers the rate by 2 percentage points in year one and 1 point in year two; from year three you pay the full note rate.
- On a $320,000, 30-year loan at 6.75%, payments are about $1,669, then $1,867, then $2,076.
- The buydown costs the total of those savings: about $7,370, usually paid by the seller or builder into an escrow account at closing.
- Lenders generally qualify you at the full note rate, so a buydown does not raise how much you can borrow.
Temporary buydowns became common again when mortgage rates rose, especially with new-construction builders and sellers who want to help buyers without cutting the list price. The idea is simple: someone pays money up front, at closing, that is used to reduce your monthly payments for a set period. With a 2-1 buydown, that period is two years.
How the payments change
| Period | Effective rate | Monthly payment (P&I) | Savings vs. note rate | Savings for the year |
|---|---|---|---|---|
| Year 1 | 4.75% | $1,669 | $406 a month | $4,875 |
| Year 2 | 5.75% | $1,867 | $208 a month | $2,497 |
| Year 3 onward | 6.75% (note rate) | $2,076 | — | — |
$320,000, 30-year fixed loan at an illustrative 6.75% note rate. Payments are principal and interest only.
Your mortgage itself does not change: it is a 6.75% fixed-rate loan from day one. The buydown money sits in an escrow account, and each month part of it is added to what you pay so the lender still receives the full note-rate payment. That is why the cost of the buydown is exactly the sum of the savings, $4,875 + $2,497 = about $7,370 in this example.
Who pays for it
Most 2-1 buydowns are paid by the seller or a builder as a concession, or occasionally by the lender. Buyers can pay for one themselves, but that rarely makes sense: you would be prepaying your own payments. Loan programs cap how much a seller can contribute toward your costs, with limits that vary by loan type and down payment, so ask your lender how much room you have.
Buydown, price cut or permanent points?
If a seller is willing to give you about $7,370, you can usually use it in one of three ways:
- A 2-1 buydown gives the biggest relief in the first two years, which helps if money is tight right after moving or you expect your income to grow.
- Permanent discount points lower the rate for the life of the loan. The same money could buy about 2.3 points on this loan; how much that lowers the rate depends on your lender's pricing. See are mortgage points worth it?
- A price reduction lowers the loan amount a little, and with it the payment, taxes and future equity math, but the monthly effect is small.
If you plan to keep the loan for many years and do not expect to refinance, permanent points usually deliver more total savings than a two-year buydown. If you expect to refinance when rates fall, or you want the easiest first two years, the buydown can be the better use of the money. One more advantage of a buydown: if you refinance or sell early, any unused buydown funds are typically credited toward your loan balance rather than lost, depending on the agreement; ask how your lender handles them.
The risk to plan for
The real risk is year three. Your payment will rise by more than $400 a month from year one in this example, and many buyers count on refinancing before then. Rates may or may not cooperate. Before relying on a buydown, make sure the full note-rate payment fits your budget today, using the debt-to-income calculator and the affordability calculator. Lenders generally qualify you at the note rate for exactly this reason.
Other buydown versions
A 1-0 buydown lowers the rate by one point for the first year only; on this loan it would cost about $2,500. A 3-2-1 buydown adds a third year and costs more. The math is the same: the cost equals the payment reductions added up.
Frequently asked questions
Is a 2-1 buydown the same as an adjustable-rate mortgage?
No. The loan is a fixed-rate mortgage; only the payment you make is subsidized for two years. The note rate never changes.
Can I use a 2-1 buydown on an FHA or VA loan?
Temporary buydowns are allowed on many loan types, including FHA, VA and conventional loans, subject to each program's rules. Ask your lender.
What happens to the buydown money if I refinance in year one?
It depends on your buydown agreement; unused funds are commonly applied to reduce your loan balance. Confirm this before closing.
Does a buydown show on the Loan Estimate?
It usually shows on the Closing Disclosure as a seller or builder credit and a buydown escrow, and the terms should be in a written buydown agreement.
See the cost of a 2-1 buydown for your own loan in the mortgage points calculator.
Sources
- Consumer Financial Protection Bureau: Loan Estimate explainer
- Consumer Financial Protection Bureau: Closing Disclosure explainer
- Consumer Financial Protection Bureau: Mortgages
Rules, limits and program details are checked against these official sources. Example numbers are calculated by CalcLedger with the formulas on our how we calculate page. Read our editorial policy.
Ad placement — in-content unit