Temporary Mortgage Buydowns
Lower initial mortgage payments with the stability of a fixed-rate loan.
Buying a home is exciting, but the monthly payment can feel like a big jump—especially when mortgage rates are higher. A temporary mortgage buydown may help reduce your payment during the first one, two, or three years of homeownership while you settle into your new home.
A temporary buydown can be paired with the security of a traditional 30-year fixed-rate mortgage. Your mortgage rate remains fixed. Instead, funds are set aside at closing to help reduce the portion of the monthly payment you pay during the temporary buydown period.
What Is a Temporary Mortgage Buydown?
A temporary mortgage buydown is a financing strategy that lowers the portion of your monthly mortgage payment you pay during the first one, two, or three years of the loan.
Funds are set aside at closing and used to cover the difference between the temporarily reduced payment and the full mortgage payment. These funds may come from an eligible seller or builder contribution, lender credit, or another permitted source.
Once the temporary buydown period ends, you begin making the full monthly payment based on the original terms of your loan.
Common Temporary Buydown Options
Temporary buydowns can be structured in different ways. The numbers describe how much the borrower’s payment is reduced during each year of the buydown period.
1-0 Buydown
Your payment during the first year is calculated as though the interest rate were 1% lower. Beginning in year two, you make the full monthly payment based on your fixed note rate.
2-1 Buydown
Your payment during the first year is calculated as though the interest rate were 2% lower. During the second year, it is calculated as though the rate were 1% lower. Beginning in year three, you make the full monthly payment.
3-2-1 Buydown
Your payment during the first year is calculated as though the interest rate were 3% lower, 2% lower during the second year, and 1% lower during the third year. Beginning in year four, you make the full monthly payment.
Why Buyers Should Consider Temporary Buydowns
A temporary buydown may be worth considering if:
You would like lower mortgage payments during the first few years of homeownership.
You want additional financial flexibility while managing moving expenses, furniture, repairs, or other costs that often come with buying a home.
The seller or builder is offering a credit that may be used toward a temporary buydown.
You expect your income to increase over time but are comfortable with the full mortgage payment today.
You want to compare temporary payment savings with other options, such as permanently reducing your interest rate or using available credits toward closing costs.
A temporary buydown does not make a home more affordable over the entire loan term, but it may provide valuable breathing room during the transition into homeownership.
Temporary Buydowns and Refinancing
Some buyers view a temporary buydown as a way to lower their initial payments while waiting to see what happens with mortgage rates.
If mortgage rates decline in the future, refinancing may provide an opportunity to lower your long-term interest rate or monthly payment. However, future rates and refinance eligibility cannot be guaranteed, so you should be comfortable with the full monthly payment once the temporary buydown period ends.
Let’s Compare Your Options
A temporary mortgage buydown can provide additional payment flexibility during the first few years of homeownership, but it is not the right strategy for every buyer.
Dundon Mortgage can help you compare temporary buydowns, permanent rate buydowns, seller credit options, and traditional financing to determine which approach best fits your goals and budget.