Mortgage Information
How Mortgage Rate Buy-Downs Actually Work
The math behind 2-1 buy-downs, permanent buy-downs, and when seller-paid options save buyers the most money.
With mortgage rates hovering higher than most buyers would like, "rate buy-downs" have become one of the most powerful — and misunderstood — tools in real estate. Used correctly, they can save a buyer tens of thousands of dollars.
2-1 temporary buy-down
A 2-1 buy-down lowers your rate by 2 points in year one and 1 point in year two before returning to the note rate in year three. The cost is escrowed at closing and often paid by the seller as a concession — meaning the buyer gets breathing room while rates (potentially) come down enough to refinance.
Permanent buy-down (paying points)
Each "point" is 1% of the loan amount and typically lowers the rate by about 0.25%. On a long hold, this math wins. On a short hold, it usually doesn't.
When it makes sense
Seller-paid temporary buy-downs are the most common play in today's market — sellers prefer them to price cuts because they preserve appraised value. If you're shopping, ask Terry to structure this into your offer.
Get in touch to model your specific numbers.