Question 1

What is a temporary rate buydown?

Accepted Answer

A temporary rate buydown lowers your monthly payment for the first one to three years of your loan by subsidizing the difference between a discounted rate and your real, permanent note rate. The money to cover that difference sits in an escrow account and is paid out to your servicer each month on your behalf. Your loan still amortizes at the note rate the entire time, the buydown only changes what you pay out of pocket during the discount period.

Question 2

What's the difference between a 1-0, 2-1, and 3-2-1 buydown?

Accepted Answer

The numbers describe how many percentage points your rate is discounted each year. A 1-0 buydown discounts year one by 1% then jumps to your permanent rate in year two. A 2-1 buydown discounts year one by 2% and year two by 1%, then your permanent rate begins in year three. A 3-2-1 buydown discounts year one by 3%, year two by 2%, and year three by 1%, with your permanent rate starting in year four. More discount years mean more total savings, but also a higher cost to fund.

Question 3

Who pays for a buydown?

Accepted Answer

Most commonly the seller, as a negotiated concession in your purchase contract, or a builder, as an incentive to buy a new construction home. Some lenders also offer buydown credits as a promotion on certain programs. It's rare for a buyer to fund their own buydown out of pocket, since a permanent rate reduction (discount points) is usually a better use of cash if you're paying for it yourself.

Question 4

Is a buydown better than just getting a lower rate?

Accepted Answer

It depends on who's paying. If a seller or builder is funding it as a concession, a buydown is close to free money, it lowers your payment with funds that didn't come from you. If you'd be paying for it yourself, permanently buying your rate down with discount points is usually more efficient long-term, since the buydown's benefit disappears after one to three years while points lower your rate for the life of the loan. Dan can run both scenarios side by side for your specific deal.

Question 5

What happens if I refinance or sell before the buydown period ends?

Accepted Answer

Any unused buydown funds remaining in the escrow account are typically applied to your loan balance or returned, depending on your lender's specific program. You don't lose that money, but you also don't get the full benefit you would have if you'd kept the loan for the whole discount period. Ask Dan about your specific lender's policy before you count on the full buydown value.

Question 6

Is this calculator's estimate exact?

Accepted Answer

No. This is a planning estimate, not a quote or a commitment to lend. Actual buydown availability, cost, and structure depend on your specific loan program, lender, and whether a seller, builder, or lender credit is funding it. Dan will confirm your real numbers before you write an offer.

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