Mortgage Buydown Calculator

How the Buydown Cost Is Calculated: a Worked Example

The cost of a temporary buydown is not a fee the lender picks. It is the exact amount of payment the lender would otherwise miss: for each month of the buydown, the full note-rate payment minus the reduced payment, added up.

Buydown cost = Σ over the buydown months of (payment at the note rate − payment at the reduced rate)

Take a $400,000, 30-year fixed loan at 7.40%, the Freddie Mac weekly average for October 15, 2026. The monthly rate is 7.40% ÷ 12 = 0.61667%, and the standard amortization formula P × i ÷ (1 − (1 + i)⁻³⁶⁰) gives a payment of $2,769.52. With a 2-1 buydown:

The buydown account must hold $9,491 at closing. Each month the servicer draws the shortfall from that account and you pay the reduced amount. Divided by the loan, the cost is 2.37 points, which is why the calculator then asks what 2.37 discount points would buy you permanently.

Buydown, Points or a Price Cut?

The same seller money can pay for a temporary buydown, permanent discount points, or a lower price. A buydown front-loads the savings into the first years, which helps if you expect to refinance soon or your income to rise. Points help most if you keep the loan for many years. A price cut lowers the loan, the down payment and property taxes but moves the monthly payment the least. How much a point lowers the rate is set by each lender’s rate sheet: the CFPB’s own example shows 0.375 points buying a 0.125-point rate cut, so the 0.25% default here is a starting assumption to replace with your Loan Estimate.

Buydown cost and break-even under different assumptions

Two patterns stand out. A 3-2-1 costs about twice a 2-1 (4.67% of the loan against 2.37%), because year 1 alone is a 3-point cut. And the break-even barely moves with loan size; it moves with the lender’s rate cut per point. If a point buys only 0.125%, points take almost ten years to pay off; at 0.375% per point they win in under four.

Fannie Mae Buydown Rules and Seller-Concession Limits

For conventional loans sold to Fannie Mae (Selling Guide B2-1.4-04, current as of October 2026):

• The rate can be cut by at most 3 percentage points and can rise by no more than 1 point a year, over at most 3 years. A 4-3-2-1 is not allowed.
• You qualify at the full note rate, not the year-1 rate. A buydown does not help you pass the debt-to-income test.
• Buydowns are allowed on principal residences and second homes, not investment properties or cash-out refinances.
• The money sits in a custodial account. If the loan is paid off early, unused funds are credited toward the payoff or returned as the buydown agreement says.

When the seller, builder or agent pays, the money counts as an interested-party contribution (Selling Guide B3-4.1-02, dated May 7, 2025). Together with any other seller-paid closing costs it is capped at:

With 5% down on a $421,000 home, the 3% cap is about $12,600, enough for the $9,491 2-1 buydown above but not for an $18,688 3-2-1.

Mistakes Buyers Make With Temporary Buydowns

• Budgeting on the year-1 payment. The step-up is automatic. In the example the payment rises $255.90 in year 2 and $267.50 more in year 3, on top of any escrow increases for taxes and insurance.
• Counting on a refinance. A buydown is often sold with “marry the house, date the rate.” If rates do not fall, you keep the note rate. If they do fall and you refinance in year 1, the unused subsidy goes to the payoff, not your pocket, so a 3-2-1 bought for a short stay is partly wasted.
• Overshooting the concession cap. Seller money above the limit in the table is not allowed; it has to be cut or treated as a sales concession that reduces the price used for the loan.
• Comparing against a made-up point price. Ask the lender for a quote at zero points and at one or two points and put the real rate cut in the calculator.

What This Calculator Does Not Include

It models principal and interest only: property tax, homeowners insurance, HOA dues and mortgage insurance are left out, and so are tax effects. It assumes a fixed-rate loan held to term with no extra payments. FHA, VA and USDA loans have their own buydown and concession rules, and lenders price points differently from day to day. For a decision on a specific contract, compare two Loan Estimates from the lender and, if you want an independent view, talk with a HUD-approved housing counselor.

Frequently Asked Questions

How to Use This Calculator

1. Enter the loan — the loan amount, the note rate from your Loan Estimate and the term in years.
2. Pick the buydown — 2-1, 3-2-1 or 1-0; the year-by-year rates appear in the results.
3. Set the points comparison — the rate cut per discount point from your lender’s quote (0.25% is a placeholder).
4. Read the results — each year’s payment and savings, the up-front cost and its share of the loan, the rate the same money buys as points, and the month points pull ahead.