Mortgage Buydown Calculator
A temporary buydown such as 2-1 or 3-2-1: the payment in each reduced year, the permanent payment after, and what the buydown costs.
Result…
How it's calculated
Permanent payment = L × i ÷ (1 − (1 + i)^−n), i = note rate ÷ 12 Year k payment = the same with i = (note rate − reduction k) ÷ 12 Cost = sum over the reduced years of 12 × (permanent payment − year k payment)
Works out a temporary buydown, where the rate is lowered for the first years and then returns to the note rate. Each reduced year's payment is calculated on the full loan at the lower rate, and the buydown costs the sum of the monthly differences: the amount someone pays upfront to cover them. Choose 2-1, 3-2-1, 1-0 or enter your own reductions.
Your numbers, step by step
About the Mortgage Buydown calculator
This mortgage buydown calculator works out a temporary buydown, where the rate is lowered for the first year or years of a loan and then returns to the note rate for good. Choose a 2-1, 3-2-1 or 1-0 buydown, or enter your own reductions, then the loan amount, the note rate and the term. You see the monthly payment in each reduced year, the permanent payment that follows and the cost of the buydown: the sum of the monthly differences, which is the amount someone pays upfront to cover them, often the seller, builder or lender. It helps when you compare an offer that includes a buydown with a lower price or other credit. The steps show each year's rate and payment with your numbers. Whether buydowns are offered differs by country and lender.
How to use it
- Choose the “Buydown”: 2-1, 3-2-1, 1-0 or Custom.
- For Custom, enter the “Rate reduction each year” in percentage points, such as 1.5, 0.75.
- Enter the “Loan amount”, the “Note rate” and the “Loan term”.
- Read the cost of the buydown, each year's payment and the permanent payment after it ends.
Worked example
On a 350,000 loan at a note rate of 6.75% over 30 years, the permanent payment is 2,270.09. A 2-1 buydown lowers the rate to 4.75% in year 1 and 5.75% in year 2, for payments of 1,825.77 and 2,042.50, and costs 8,062.99, about 2.3% of the loan. A 3-2-1 buydown on the same loan starts at 1,620.90 and costs 15,853.26.
Updated
Questions people ask
How is the cost of a 2-1 buydown calculated?
Work out the payment at the note rate and at each reduced rate, then add up 12 × the monthly difference for each reduced year. That sum is what has to be paid in upfront.
What does 3-2-1 mean on a mortgage?
The rate is 3 points below the note rate in year 1, 2 points below in year 2 and 1 point below in year 3. From year 4 the full note rate and payment apply.
Is a temporary buydown the same as buying points?
No. A temporary buydown lowers the payment only for the first years, while points lower the rate for the whole loan. To weigh points, use the mortgage points calculator.
What is a common mistake with a buydown?
Budgeting on the year 1 payment. The payment rises each year until it reaches the permanent payment, so make sure that higher figure fits your budget.
What does the buydown calculator leave out?
It assumes each reduced payment is worked out on the full loan over the full term, and it leaves out how the funds are held and any rules on who may pay them, which differ by country and lender. Check the details with your lender or a mortgage adviser, and see the full payment over time in the amortization calculator.