PAYMENT & OFFER STRATEGY TOOL
Temporary Buydown Calculator
Estimate the year-by-year payment, monthly savings, and total subsidy required for a 1-0, 1-1, 2-1, or 3-2-1 temporary buydown.
IMPORTANT PLANNING DISCLOSURE
Qualification is based on the full note rate.
A temporary buydown reduces the borrower’s scheduled payment for a limited period through a funded subsidy account. It does not reduce the note rate, and the borrower generally must qualify using the full note-rate payment. Program, investor, contribution-limit, and documentation requirements apply.
COMPARE THE SAME SELLER DOLLAR
A credit can solve different problems.
Temporary buydown
Calculated aboveFront-loads payment relief for a defined period while the full note rate remains unchanged.
Closing-cost credit
Same dollar amountReduces cash required at closing but generally does not change the scheduled monthly payment.
Price reduction
Usually smaller payment effectReduces price and potentially loan amount. The monthly impact is often modest compared with a targeted payment subsidy.
Permanent rate buydown requires live pricing.
The cost to permanently reduce a rate changes with the market, loan program, occupancy, credit profile, lock period, and lender pricing. The correct comparison is a live side-by-side quote, not a fixed “one point equals one rate reduction” assumption.
HOW IT WORKS
Temporary payment relief, not a different qualifying rate
The loan closes at the full note rate. Funds placed into a subsidy account cover the difference between the full principal-and-interest payment and the temporarily reduced payment during the buydown period. After the scheduled period ends, the borrower pays the full note-rate payment.
Who may fund it?
Depending on the loan program and transaction, the subsidy may be funded by a seller, builder, lender, or another permitted interested party. Contribution limits and documentation rules must be reviewed before the contract or incentive is finalized.
Common planning mistake
The first-year payment can feel attractive, but the client’s budget must remain aligned with the later full payment. A responsible strategy shows every payment period, the full note-rate obligation, cash-to-close implications, and what happens if rates do not decline.
Frequently asked questions
Does a temporary buydown change the mortgage rate?
No. The note rate remains the same. The subsidy temporarily reduces the amount the borrower pays toward principal and interest.
Does the borrower qualify at the reduced payment?
Generally no. Qualification is typically based on the full note-rate payment, subject to the applicable program and investor guidelines.
What happens to unused subsidy funds after an early refinance or payoff?
Treatment can depend on the buydown agreement and program requirements. The documentation should be reviewed before closing rather than assumed.
Is a temporary buydown always better than a price reduction?
No. The better use of a seller concession depends on the client’s payment objective, cash-to-close needs, time horizon, likely refinance window, and the property negotiation.