A temporary buydown can make the first few years of a mortgage less expensive by using an upfront subsidy to cover part of the scheduled principal-and-interest payment.
The calculator above lets you compare common structures such as a 1-0, 2-1 and 3-2-1 buydown, see how the payment changes each year and estimate how much money must be set aside to fund those reductions.
How to Use the Temporary Buydown Calculator
Enter the basic terms of the mortgage and select the temporary buydown structure you want to compare. The calculator estimates both the reduced payments during the buydown period and the full payment you would make after the subsidy ends.
| Input |
What It Means |
Why It Matters |
| Loan amount |
The mortgage balance used in the calculation |
A larger loan generally produces a larger payment difference and a larger buydown subsidy. |
| Note rate |
The interest rate stated in the mortgage note |
The full principal-and-interest payment is based on this rate and continues after the temporary subsidy ends. |
| Loan term |
The repayment period, such as 30 years |
The term affects both the full payment and the payment equivalents used during the buydown period. |
| Buydown structure |
The temporary payment pattern, such as 1-0, 2-1 or 3-2-1 |
This determines how many years receive a subsidy and the size of the payment reduction each year. |
You can also use the monthly payment calculator to compare the principal-and-interest payment without a temporary buydown.
What Is a Temporary Buydown?
A temporary buydown uses money deposited upfront to subsidize part of your mortgage payment during the first one to three years of the loan. You make the reduced payment shown in the buydown schedule, while money from the buydown account covers the difference between that amount and the payment required under the mortgage note.
The note rate itself does not step up over time. For example, a mortgage with a 6.5% note rate and a 2-1 buydown remains a 6.5% mortgage. The first-year payment is calculated using the payment equivalent of a 4.5% rate, and the second-year payment uses the equivalent of 5.5%. Beginning in year three, you make the full payment based on the 6.5% note rate.
This is different from an adjustable-rate mortgage, where the actual interest rate can change according to the terms of the loan. It's also different from a permanent buydown, also called mortgage points
How the Temporary Buydown Calculator Works
The calculator begins by finding the full monthly principal-and-interest payment using the loan amount, term and note rate. It then estimates a payment for each discounted year using the rate equivalent associated with the selected buydown structure.
For each year, the calculator subtracts the temporary payment from the full note-rate payment. That monthly difference is multiplied by 12 to estimate the subsidy required for the year. The yearly subsidy amounts are then added together to produce the estimated total buydown cost.
| Buydown Type |
Payment Equivalent |
Subsidy Period |
| 1-0 |
Year 1: note rate minus 1 percentage point |
1 year |
| 2-1 |
Year 1: note rate minus 2 percentage points
Year 2: note rate minus 1 percentage point |
2 years |
| 3-2-1 |
Year 1: note rate minus 3 percentage points
Year 2: note rate minus 2 percentage points
Year 3: note rate minus 1 percentage point |
3 years |
The mortgage continues to amortize according to its actual note terms. The temporary rate equivalents are used to determine how much of the scheduled payment you make and how much is supplied from the buydown account.
2-1 Buydown Calculator Example
Consider a hypothetical $400,000, 30-year fixed mortgage with a 6.5% note rate and a 2-1 temporary buydown.
| Period |
Payment Equivalent |
Approx. Monthly Principal and Interest |
| Year 1 |
4.5% |
$2,027 |
| Year 2 |
5.5% |
$2,271 |
| Year 3 and later |
6.5% note rate |
$2,528 |
In year one, the difference between the full $2,528 payment and the temporary $2,027 payment is about $502 per month. Over 12 months, that requires roughly $6,018 in subsidy funds.
In year two, the difference is about $257 per month, or approximately $3,085 for the year. Added together, the estimated 2-1 buydown subsidy is about $9,104.
This example includes principal and interest only. Property taxes, homeowners insurance, mortgage insurance and other housing costs are separate.
How to Calculate a 2-1 Buydown
A 2-1 buydown provides two years of temporary payment relief. The first-year payment is calculated using a rate equivalent 2 percentage points below the note rate, and the second-year payment uses an equivalent 1 percentage point below the note rate.
The subsidy can be estimated with two calculations:
- Year-one subsidy = full monthly payment minus year-one payment, multiplied by 12
- Year-two subsidy = full monthly payment minus year-two payment, multiplied by 12
Add the two yearly amounts to estimate how much must be placed in the buydown account. After the second year, the subsidy ends and you make the full note-rate payment.
How to Calculate a 3-2-1 Buydown
A 3-2-1 buydown spreads the subsidy across three years. The first-year payment uses an equivalent rate 3 percentage points below the note rate, followed by reductions of 2 percentage points in year two and 1 percentage point in year three.
The calculator finds the payment difference for all three years and adds those amounts together. Because a 3-2-1 structure provides a deeper initial reduction and lasts an additional year, it generally requires a larger subsidy than a 2-1 buydown on the same mortgage.
It also creates three payment levels before you reach the full note-rate payment. Comparing each step can give you a clearer picture of how the mortgage fits your budget after the initial year.
How to Calculate a 1-0 Buydown
A 1-0 buydown lasts one year. The first-year payment is based on an equivalent rate 1 percentage point below the note rate.
Subtract that temporary monthly payment from the full note-rate payment and multiply the difference by 12 to estimate the subsidy. Beginning in year two, you make the full principal-and-interest payment required by the mortgage.
Do You Qualify at the Temporary Buydown Payment?
Do not assume the temporarily lower payment increases the mortgage amount you can qualify for. For conventional mortgages subject to Fannie Mae or Freddie Mac temporary buydown rules, the lender generally evaluates qualification using the full note-rate payment.
Fannie Mae requires borrowers with a temporary interest rate buydown to be qualified based on the note rate rather than the bought-down payment. Freddie Mac also requires borrowers with eligible fixed-rate temporary subsidy buydowns to qualify using the note-rate payment.
Loan-program and lender requirements can differ, so the calculator should be used to estimate the payment schedule rather than determine whether you qualify for the mortgage.
Who Can Pay for a Temporary Buydown?
The party funding a temporary buydown depends on the loan program and transaction. Sellers and builders commonly use temporary buydowns as part of a purchase concession, and lenders can also fund eligible buydowns.
For conventional loans, Fannie Mae permits lender-funded temporary buydowns and funding from interested parties, subject to applicable contribution limits and other requirements.
The full subsidy generally must be funded according to the loan program's rules. The calculator estimates the amount required but does not determine whether a particular funding source is permitted.
What the Calculator Can and Cannot Tell You
The calculator can estimate:
- Your principal-and-interest payment during each temporary buydown year
- Your full principal-and-interest payment at the note rate
- The monthly payment increase as each buydown step expires
- The estimated total subsidy needed for the selected structure
The calculator cannot determine whether your mortgage is eligible for a temporary buydown, whether a seller or lender can contribute the required amount, or whether you qualify for the loan. It also does not determine whether the higher payment after the subsidy ends fits your long-term budget.
Program rules matter. For example, Fannie Mae limits eligible temporary buydowns to certain transaction and occupancy types and requires the buydown terms to be documented in a written agreement.
The Bottom Line
A temporary buydown calculator shows how a 1-0, 2-1 or 3-2-1 structure changes your principal-and-interest payment during the first few years of a mortgage and how much subsidy is required to create those reductions. The most useful comparison is the entire payment schedule, including the full note-rate payment that begins after the subsidy expires.
Frequently Asked Questions
What Is a Temporary Buydown?
A temporary buydown uses an upfront subsidy to reduce the amount of the mortgage payment you make during the first one to three years. The mortgage itself retains its full note rate.
Does a Temporary Buydown Lower My Mortgage Rate?
No. The note rate does not change. The reduced early payments are calculated using lower rate equivalents, and money from the buydown account covers the difference between your temporary payment and the payment required under the note.
How Is the Cost of a Temporary Buydown Calculated?
Subtract each temporary monthly payment from the full note-rate payment, multiply the difference by the number of months that payment applies, then add the subsidy amounts from each buydown year.
Is a Temporary Buydown the Same as Paying Discount Points?
No. A temporary buydown subsidizes your payment for a limited period. Paying mortgage discount points generally reduces the actual note rate for the loan rather than temporarily subsidizing the payment.
Do I Qualify for a Mortgage Using the Lower Buydown Payment?
Not necessarily. Fannie Mae and Freddie Mac require borrowers with eligible conventional temporary buydowns to qualify using the applicable note-rate payment rather than the reduced initial payment.
Who Usually Pays for a Temporary Buydown?
A seller, builder or lender may fund a temporary buydown depending on the transaction and mortgage program. Contribution limits and other program rules can restrict how the subsidy is funded.
What Happens to Unused Buydown Funds if I Sell or Refinance Early?
The treatment of remaining funds depends on the buydown agreement and applicable loan rules. Under Fannie Mae guidelines, remaining funds after a mortgage is paid in full can be credited toward the payoff or returned to the borrower or lender when the agreement provides for it.
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