A 2-1 buydown doesn’t change your loan’s actual rate — it uses an escrowed subsidy, often from the seller or builder, to temporarily cover part of the payment for the first two years.
How it works
Standard loan amortization gives the payment at each of three rates: the permanent rate (year 3+), permanent-minus-1% (year 2), and permanent-minus-2% (year 1). The total buydown cost is the sum of the payment differences across both reduced years, times 12 months each.
What this does not include
This does not include the borrower’s actual qualification requirements — many lenders still qualify the borrower at the permanent (higher) rate rather than the temporarily reduced year-1 rate, meaning the buydown eases cash flow but doesn’t necessarily ease approval.
How to use this calculator
- Enter the loan amount, permanent note rate, and loan term.
Frequently asked questions
Who typically pays for a 2-1 buydown?
Often the seller or builder, as a concession to make the home more attractive in a slower market, though buyers can also fund it themselves.
What happens to unused buydown funds if the loan is refinanced or paid off early?
Depending on the program, remaining escrowed funds may be applied to the principal balance or, in some cases, returned to whoever funded the buydown — terms vary by lender and program.
Is a 2-1 buydown the same as paying discount points?
No — discount points permanently reduce the note rate for the life of the loan; a 2-1 buydown temporarily reduces the *effective payment* for two years while the actual note rate never changes.
