Why agents care
Builders and sellers use temporary buydowns as incentives. Buyers need to see the payment in each year, and the full payment that follows, so they don't mistake the first-year payment for the permanent one.
Glossary term
Temporary buydown
A temporary buydown lowers the borrower's interest rate for the first one to three years, funded by an upfront deposit, often from a seller or builder. In a 2-1 buydown, the rate is two points lower in year one and one point lower in year two, then returns to the note rate. The borrower qualifies at the note rate.
Example
Example: on a 6.75% note rate, a 2-1 buydown gives 4.75% in year one and 5.75% in year two. On a $382,500 loan, that's about $1,995 then $2,232, then $2,481 from year three.
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Questions by topic
Temporary buydown: common questions
Is a temporary buydown the same as discount points?
No. Points lower the rate for the life of the loan. A temporary buydown lowers it for a year or two.
What happens if the buyer refinances during the buydown?
Treatment of unused buydown funds varies. The lender explains how they're applied.
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