Buydown Calculator

Calculate the cost and payment savings of a temporary interest rate buydown. See how 3-2-1, 2-1, 1-1, and 1-0 buydowns reduce your monthly payments in the early years.

Loan Information

Additional Options (PITI)

Include Property Taxes
Include Homeowners Insurance

Buydown Summary

Loan: $400,000 Note Rate: 7.000% 3-2-1 Buydown Buydown Cost: $0

Full Rate Payment

$0

Year 1 Payment

$0

Year 1 Savings

$0/mo

Total Buydown Cost

$0

Year-by-Year Breakdown

📐 Show Calculation Steps

Step 1: Determine Buydown Rates

Each year's rate is reduced from the note rate:

Step 2: Calculate Monthly Payments at Each Rate

Payment = Principal × (r / (1 - (1 + r)-n))
where r = monthly rate, n = number of payments

Step 3: Calculate Monthly Savings per Year

Savings = Full Rate Payment - Reduced Payment

Step 4: Calculate Total Buydown Cost

Total Cost = Sum of (Monthly Savings × 12 months) for each year

How Buydowns Work

A buydown is a financing technique where an upfront payment (typically from the seller, lender, or builder) is placed in an escrow account. Each month, funds are drawn from this account to subsidize the borrower's payment, making up the difference between the reduced payment and the full payment. The loan is still underwritten at the full note rate, but the borrower enjoys lower payments in the early years.
Understanding Buydown Types

3-2-1 Buydown: Year 1 rate reduced by 3%, Year 2 by 2%, Year 3 by 1%, then full rate.
2-1 Buydown: Year 1 rate reduced by 2%, Year 2 by 1%, then full rate.
1-1 Buydown: Year 1 and Year 2 rate reduced by 1%, then full rate.
1-0 Buydown: Year 1 rate reduced by 1%, then full rate.

Buydowns are typically funded by sellers, builders, or lenders as a closing credit. They help borrowers qualify more easily and reduce payment shock in the early years of homeownership.