Rate Buydown vs Lower Rate Offer
A **2-1 buydown** lowers payments years one and two then steps up—often funded by seller credits. A **lower permanent rate** costs points or a higher price but saves interest for the full term if you stay.
Step by step
1. Model payment shock
Ensure year-three payment fits budget when buydown ends.
2. Compare total interest
Sum years 1–30 at stepped vs flat rate scenarios.
3. Net seller credit
Credit used for buydown cannot also fund closing costs—allocate in contract.
Buydown vs lower rate
Buydowns help cash flow early; permanent buydown points help long holds.
- Temporary buydown: Easier qualification early; payment jumps later.
- Lower rate: Stable payment; upfront points or rate premium.
Common mistakes
- Ignoring recast at buydown end
- Choosing buydown without seller credit to fund it
FAQ
Are buydowns refundable?
Typically prepaid interest—lost if you refinance early in year one.