Buy Down Rate Calculator

Buying a home often involves more than just negotiating the price — interest rates play a big role in determining affordability. A Buy Down Rate Calculator helps you estimate how much you can save by temporarily or permanently lowering your mortgage interest rate.

Buy Down Rate Calculator

🏠 What Is a Buy Down Rate?

A mortgage buydown is when you pay additional money upfront (in the form of discount points) to reduce the interest rate on your loan — temporarily or permanently.

Each discount point typically costs 1% of your loan amount and reduces your interest rate by about 0.25%, though this varies by lender and market conditions.

There are two main types of buydowns:

  1. Permanent Buydown: You pay points upfront to reduce the interest rate for the life of the loan.
  2. Temporary Buydown: Your interest rate starts lower for a set period (e.g., 2–1 buydown = 2% lower in year 1, 1% lower in year 2), then reverts to the original rate.

📘 How the Buy Down Rate Calculator Works

This calculator estimates:

  • Your monthly payment before and after the buydown
  • Total cost of points or buydown amount
  • Total savings over time
  • Break-even point — when the upfront cost equals the savings from lower payments

🧮 Formula Used in the Calculator

1. Monthly Mortgage Payment Formula

M = P × [r(1 + r)^n] / [(1 + r)^n – 1]

Where:

  • M = Monthly payment
  • P = Loan amount
  • r = Monthly interest rate (annual rate / 12)
  • n = Total number of payments (loan term × 12)

2. Buydown Cost

Buydown Cost = Loan Amount × (Points / 100)

3. Break-Even Point

Break-Even Months = Buydown Cost / Monthly Savings

This tells you how long it will take for your savings from the lower interest rate to offset the upfront cost.

⚙️ How to Use the Buy Down Rate Calculator

  1. Enter your loan amount: Example – $400,000.
  2. Select loan term: Typically 15, 20, or 30 years.
  3. Input base interest rate: The rate without a buydown.
  4. Enter buydown interest rate or discount points: Example – 1 point for 0.25% reduction.
  5. Choose buydown type: Permanent or temporary (1-0, 2-1, or 3-2-1 buydown).
  6. Click “Calculate”: Instantly view monthly payments, total savings, and break-even period.

💡 Example Calculation

Loan Amount: $400,000
Loan Term: 30 years
Base Interest Rate: 6.5%
Buydown Rate: 6.0% (0.5% lower)
Points Purchased: 2 (cost = 2% of $400,000 = $8,000)

Without Buydown

Monthly Payment = $2,528

With Buydown

Monthly Payment = $2,398

Monthly Savings = $130

Break-even = $8,000 ÷ $130 ≈ 61.5 months (5.1 years)

If you plan to stay in the home longer than 5 years, the buydown becomes a cost-effective choice.

🧩 Example: Temporary Buydown

2–1 Buydown on a $400,000 Loan at 6.5%

  • Year 1: Rate = 4.5% → Payment ≈ $2,027
  • Year 2: Rate = 5.5% → Payment ≈ $2,271
  • Year 3–30: Rate = 6.5% → Payment ≈ $2,528

You save roughly $6,000 over the first two years — often paid by the seller or builder in new home purchases.

📊 Benefits of Using a Buy Down Rate Calculator

  • Understand savings: Easily compare buydown vs. standard loan scenarios.
  • Find break-even points: Know when you’ll recover your upfront cost.
  • Plan smarter: Choose the best rate strategy based on how long you’ll keep the loan.
  • Compare multiple scenarios: Test different rates, points, and loan terms.
  • Negotiate effectively: Use results to discuss options with lenders or sellers.

📘 Plain Text Formula Summary

  1. Monthly Payment = P × [r(1 + r)^n] / [(1 + r)^n – 1]
  2. Buydown Cost = Loan Amount × (Points / 100)
  3. Monthly Savings = Original Payment – New Payment
  4. Break-Even = Buydown Cost / Monthly Savings

🧠 Helpful Insights

  • If you plan to sell or refinance before reaching the break-even point, a buydown may not be cost-effective.
  • Temporary buydowns are great for first-time buyers who expect higher future income.
  • Permanent buydowns benefit those planning to stay long-term.
  • Always compare APR (annual percentage rate), as it reflects the real cost after fees and points.
  • Sellers often offer buydowns as incentives in a buyer’s market — a useful negotiation point.

💬 20 Frequently Asked Questions (FAQs)

  1. What is a buydown rate?
    It’s a reduced mortgage rate achieved by paying points upfront or through a temporary agreement.
  2. How much does one point reduce interest?
    Typically 0.25%, but it varies by lender and market conditions.
  3. What does one point cost?
    One point costs 1% of your loan amount.
  4. What’s a permanent buydown?
    You pay points to lower your rate for the entire loan term.
  5. What’s a temporary buydown?
    A reduced rate for the first few years, then it returns to the standard rate.
  6. What’s a 2–1 buydown?
    Interest rate is 2% lower in year 1, 1% lower in year 2, then normal afterward.
  7. Who pays for a buydown?
    The buyer, seller, or builder — depending on the agreement.
  8. Is a buydown worth it?
    It depends on how long you’ll keep the loan and the break-even point.
  9. How is the break-even point calculated?
    Divide the cost of the buydown by the monthly savings.
  10. Can a buydown reduce my APR?
    It can lower your nominal interest rate, but not necessarily your APR due to fees.
  11. Are buydown costs tax-deductible?
    Discount points paid on purchase loans may be tax-deductible; consult a tax advisor.
  12. Does it work for refinances?
    Yes, you can also buy down rates on refinances.
  13. Is a temporary buydown good for short-term ownership?
    Yes, especially if you plan to refinance or move within a few years.
  14. Do all lenders offer buydowns?
    Most do, but terms and rates differ. Always ask for details.
  15. What’s the difference between discount points and buydown points?
    They’re similar, but temporary buydowns may be structured differently by lenders.
  16. Can sellers pay for the buydown?
    Yes, sellers often cover temporary buydowns to attract buyers.
  17. Does a buydown change my loan term?
    No, it only affects the interest rate, not the term.
  18. Can I combine buydown with refinancing later?
    Yes, you can refinance later at a new rate if conditions improve.
  19. What’s better — bigger down payment or buydown points?
    A larger down payment lowers principal; points lower interest. Compare both for total savings.
  20. Is a buydown calculator accurate for all loans?
    It gives reliable estimates for standard fixed-rate mortgages. Adjustable-rate loans may vary.

🏁 Conclusion

The Buy Down Rate Calculator is a valuable financial tool for anyone comparing mortgage options. By entering just a few numbers, you can see exactly how buydowns affect your monthly payments, overall savings, and long-term affordability.