If you’re shopping for a home right now, interest rates are probably top of mind. When rates rise, it can feel like your dream home slips just out of reach. But there are strategies designed to provide relief; one of the most effective is the Temporary Buydown, which allows buyers to purchase a home with a lower interest rate for a predetermined period of time.

What Is a Temporary Buydown?

A Temporary Buydown is a financing option that lowers your interest rate and your monthly payment for the first few years of your mortgage. It’s funded by a one-time deposit at closing that offsets part of your payments until the buydown period ends. And one of the best parts: This can sometimes be negotiated to be paid by the seller of the property.

In today’s market, this approach offers breathing room and flexibility, allowing homeowners to adjust to their new payments gradually.

How Does It Work?

Buydown options vary, but here are the most common:

• 1-Year Buydown (1-0): Rate reduced by 1% for the first year.
• 2-Year Buydown (2-1): Rate reduced by 2% the first year and 1% the second year.
• 3-Year Buydown (3-2-1): Rate reduced by 3% the first year, 2% the second, and 1% the third.

Example:
If your loan has a 6% fixed rate and you choose a 3-2-1 buydown:

• Year 1: Payments based on 3%
• Year 2: Payments based on 4%
• Year 3: Payments based on 5%
• Year 4+: Payments return to 6% for the remainder of the loan

The benefit is clear: the most savings come up front, when many buyers need extra financial flexibility.

Who Pays for the Buydown?

The cost is equal to the total interest savings during the buydown period and is typically paid at closing. Funding can come from:

• Sellers or Builders – often offered as a concession to attract buyers- most common option.
• Buyers – who choose to pay for the buydown themselves
• Lenders or Agents – occasionally, as an incentive or promotion, but this is not common.

The funds to secure the temporary buydown are deposited into an escrow account, and the loan servicer applies them monthly to reduce your payment until the buydown period ends.

Temporary buydowns deliver greater short-term payment relief, while permanent buydowns provide smaller but long-lasting savings. If you’re a buyer or a seller, a temporary buydown could help you meet your goal. Here are some examples:

Buyer Perspective: Creating Breathing Room

Scenario:
Sarah is a first-time homebuyer purchasing a $500,000 home with a 30-year fixed-rate mortgage at 6%.

• Without a buydown, her monthly principal and interest payment would be about $2,998.
• With a 2-1 buydown, her payments drop to:
  • Year 1: ~$2,398 (based on 4%)
  • Year 2: ~$2,698 (based on 5%)
  • Year 3+: ~$2,998 (based on 6%)

Benefit:
Sarah saves roughly $7,200 over the first two years. That extra cash flow gives her time to rebuild savings after her down payment, furnish her new home, and adjust comfortably to full payments. She could even start making the full payment on year one while putting the additional cash above the required minimum toward the principal balance of the loan, allowing her to pay even less interest over time.

Seller Perspective: Making a Home More Attractive

Scenario:
Tom is selling his home in a slower market. His property is listed at $600,000, but buyers are hesitating because payments at today’s rates feel high.

• Instead of dropping his asking price by $20,000, Tom offers to contribute about $12,000 toward a 3-2-1 buydown.
• This reduces the buyer’s effective rate from 6% to:
  • 3% in Year 1
  • 4% in Year 2
  • 5% in Year 3

Seller Perspective: Price Drop vs. Buydown (20% Down Example)

• Home Price = $600,000
• Buyer Down Payment = 20% ($120,000)
• Loan Amount = $480,000
• Interest Rate = 6% (30-year fixed)

Option 1: Seller Reduces Price by $20,000

• New Price = $580,000
• New Down Payment (20%) = $116,000
• New Loan Amount = $464,000
• Monthly P&I @ 6% ≈ $2,779
• Savings vs. full price loan ($480,000 @ 6%) ≈ $120/month for life of loan

Option 2: Seller Contributes $12,000 Toward a 3-2-1 Buydown

• Full Price = $600,000 (Loan = $480,000)
• Payments become:
  • Year 1 @ 3% ≈ $2,024 (saves $875/month for 1^st year)
  • Year 2 @ 4% ≈ $2,293 (saves $606/month for 2^nd year)
  • Year 3 @ 5% ≈ $2,577 (saves $322/month for 3^rd year)
  • Year 4+ @ 6% = $2,899 (standard payment)

Bottom Line:

• A $20,000 price drop lowers the monthly payment by only ~$120/month.
• A $12,000 buydown contribution lowers payments by up to $875/month in Year 1.

For less money out of Tom’s pocket, the buyer gets far greater short-term affordability, while Tom keeps his sales price strong.

Benefits to the Temporary Buydown:
The buyer enjoys lower payments up front, making the home more appealing without Tom sacrificing as much equity. It’s a win-win: the buyer gets affordability, and Tom sells more quickly at a stronger price.

Final Thoughts

A Temporary Buydown can be a smart tool for navigating today’s housing market. But like any financial decision, it’s best weighed carefully against your goals and long-term plans.

At Freestone Mortgage, we’re committed to transparency and data-driven insights. Our team can walk you through the numbers, compare scenarios with our calculator, and help you decide if a buydown is right for you.

Let’s explore your options together so you can move forward with clarity and confidence. Click Apply Now at the top of this page and we will be in touch.

The sample rates provided are for illustration purposes only and are not intended to provide mortgage or other financial advice specific to the circumstances of any individual and should not be relied upon in that regard. Freestone Mortgage LLC cannot predict where rates will be in the future. The payment example does not include assessments. Actual payment obligations may be greater and may vary. Mortgage Insurance Premium (MIP) is required for all FHA loans, and Private Mortgage Insurance (PMI) is required for all conventional loans where the LTV is greater than 80%. Rate(s), APR(s) and payment info is valid as of 9/15/2025 and assumes a first lien position, 740 FICO score, 30-day rate lock, based on a single-family home. Loans are subject to underwriting guidelines and the applicant’s credit profiles, not all applicants will receive approval. Available for conventional, FHA, VA, and USDA loans only. All loans subject to underwriting approval. Certain restrictions apply. Call for details.