2-1, 3-2-1, and permanent buydowns explained
In a market where interest rates can feel intimidating, many buyers are surprised to learn they have options beyond “take it or leave it.” One of the most effective—but often misunderstood—tools is a mortgage buydown.
A buydown doesn’t change the home price. Instead, it reduces your interest rate and monthly payment, either temporarily or permanently. Here’s how it works and when it makes sense.
What Is a Mortgage Buydown?
A mortgage buydown is a strategy where money is paid upfront to reduce the interest rate on a loan. That money is typically placed in escrow and used to subsidize your payment during the early years of the loan—or to permanently lower the rate.
Buydowns are often paid by:
- Sellers
- Builders
- Lenders (as a credit)
- Sometimes the buyer
Temporary Buydowns Explained
2-1 Buydown
Year 1: Rate is 2% lower
Year 2: Rate is 1% lower
Year 3+: Full note rate applies
3-2-1 Buydown
Year 1: Rate is 3% lower
Year 2: Rate is 2% lower
Year 3: Rate is 1% lower
Year 4+: Full rate applies
These structures are popular when buyers expect income growth or plan to refinance later.
Permanent Buydowns
A permanent buydown reduces your interest rate for the entire life of the loan. It typically costs more upfront but provides:
- Lower payment every month
- Predictable long-term savings
- No future payment increases
Permanent buydowns often appeal to buyers planning long-term ownership.
Who Pays for a Buydown?
In many cases, buydowns are funded by:
- Seller concessions
- Builder incentives
- Lender credits
This makes buydowns especially powerful in markets where sellers are motivated and inventory is higher.
When Buydowns Make the Most Sense
Buydowns can be a smart move if:
- You want lower payments early on
- You expect future income increases
- You’re buying new construction with incentives
- You want payment flexibility without refinancing
The key is making sure the strategy aligns with your long-term plan.
How Affinity Home Lending Helps Buyers Use Buydowns Strategically
We help buyers:
- Compare buydown vs. price reduction
- Analyze short-term and long-term savings
- Structure seller-paid buydowns
- Avoid payment shock when rates adjust
- Decide between temporary and permanent options
Buydowns aren’t gimmicks—they’re tools when used correctly.