If you're exploring ways to make homeownership more affordable, a buydown mortgage might be the perfect solution. This strategy can lower your interest rate—at least temporarily—and help you save money during the early years of your loan. But what exactly is a buydown mortgage, and is it right for you?

In this blog, we'll break down everything you need to know about buydown mortgages, how they work, and when to consider one.

What Is a Buydown Mortgage?

A buydown mortgage is a financing option that allows the borrower—or sometimes the seller or builder—to pay upfront fees in exchange for a lower interest rate on the mortgage for a set period.

There are two main types:

1. Temporary Buydowns

With a temporary buydown, your interest rate is reduced for the first few years of the mortgage and then reverts to the original rate. Common examples include:

• 3-2-1 buydown: The rate is reduced by 3% in the first year, 2% in the second, and 1% in the third.

• 2-1 buydown: The rate drops by 2% in the first year and 1% in the second year.

2. Permanent Buydowns

In a permanent buydown, you pay points upfront to lower your interest rate for the entire term of the loan. This is often referred to as paying discount points.

How Does a Buydown Work?

Let’s say you take out a 30-year mortgage with a 7% interest rate. With a 2-1 buydown, your interest rate would be:

• 5% in Year 1

• 6% in Year 2

• 7% from Year 3 onward

This setup can make your monthly payments more manageable during the initial years, freeing up cash for moving expenses, renovations, or adjusting to other financial changes.

Who Pays for the Buydown?

A buydown can be paid for by:

• The buyer – in exchange for lower payments early on.

• The seller – to incentivize a sale in a buyer’s market.

• The builder or lender – to sweeten the deal for new home construction or loan options.

Pros of Buydown Mortgages

Lower initial payments – Easier budgeting during early years of homeownership
Great for short-term ownership – Useful if you plan to sell or refinance before the rate increases
Seller-paid buydowns – Can be a win-win in a competitive housing market

Cons of Buydown Mortgages

Upfront cost – Someone must cover the cost of the rate reduction
Temporary relief – Monthly payments will increase after the initial period
Not ideal for long-term ownership without permanent buydown

Is a Buydown Mortgage Right for You?

A buydown mortgage is best for homebuyers who:

• Expect their income to rise in the near future

• Need lower payments in the short term

• Are negotiating with sellers in a slow market

• Plan to refinance or sell before the higher rates kick in

Always work with a knowledgeable mortgage lender or real estate agent to understand your options and ensure a buydown fits into your long-term financial strategy.

A buydown mortgage can be a valuable tool in today’s real estate market—especially if you’re looking to save money upfront or make a smoother transition into homeownership. Whether you’re a first-time buyer or a savvy investor, understanding how buydowns work can give you an edge in your next home purchase.

Thinking of buying a home and want to explore buydown options? Contact a trusted local real estate agent or mortgage professional to see what programs might be available for you!

Matt Witte strives to be the best realtor in North Andover MA.

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