What is a mortgage rate buydown?

A mortgage rate buydown reduces the borrower payment temporarily through a funded subsidy or permanently through discount points that reduce the note rate.

Does a 2-1 buydown change the mortgage note rate?

No. The note rate remains the permanent contract rate. Deposited funds subsidize the difference in scheduled payments during the first two years.

Do I qualify using the temporary buydown payment?

For eligible Fannie Mae loans, qualification is based on the full note rate rather than the reduced temporary payment. Other program rules should be confirmed with the lender.

Is a permanent buydown the same as discount points?

Yes. A permanent buydown generally means paying discount points for a lower note rate that lasts while the mortgage remains in place.

Mortgage buydown guide

Mortgage rate buydowns explained

A buydown can reduce your payment, but not every buydown works the same way. The key is knowing whether the lower payment is temporary, what it costs, and whether the savings fit the time you expect to keep the mortgage.

Reviewed by LenderCity Editorial Mortgage Team · Updated July 27, 2026

The short answer

A mortgage buydown lowers the payment by reducing the interest rate temporarily or permanently.

A temporary buydown uses money set aside at closing to subsidize early payments. A permanent buydown uses discount points to reduce the note rate for as long as the mortgage remains in place. The lower first-year payment may look similar, but the cost, qualification rules, and long-term value are different.

How the two buydowns differ

FeatureTemporary buydownPermanent points

How it worksFunds deposited at closing cover part of the scheduled payment during the buydown period.Upfront points purchase a lower note rate.

How long it lastsUsually one to three years, depending on the structure.For the life of the mortgage unless you sell, refinance, or pay it off.

QualificationFor Fannie Mae loans, the borrower is qualified at the full note rate, not the reduced payment.The lower note rate is generally part of the qualifying payment, subject to program rules.

Main questionCan you comfortably handle the full payment when the subsidy ends?Will you keep the mortgage long enough to recover the points?

What a 2-1 buydown means

In a typical 2-1 temporary buydown, the effective payment is calculated as if the rate were two percentage points lower in year one and one point lower in year two. In year three, the borrower pays the full note-rate payment. The note itself is not rewritten each year; the deposited buydown funds make up the difference.

Do not compare the first-year payment with another loan's permanent payment. Compare the full note rate, total subsidy, cash to close, and what happens after the buydown expires.

Who can pay for a temporary buydown?

The source depends on the loan program and transaction. A seller, builder, lender, or another permitted party may fund it, but agency rules and interested-party contribution limits still apply. Fannie Mae also requires a written agreement and does not permit temporary buydowns for every property or transaction type.

How Lenny would compare a buydown

Normalize the offers. Put both loans on the same amount, term, lock assumptions, and closing date.
Show the full payment path. Compare year one, year two, and the permanent payment after the subsidy ends.
Separate subsidy from lender price. A seller-funded subsidy is not the same economic choice as borrower-paid points.
Calculate break-even. For points, divide added upfront cost by monthly savings. For a temporary buydown, compare the subsidy and any alternative seller credit.
Match the timeline. A short expected holding period can make a permanent point purchase hard to recover.

Questions to ask before choosing one

What is the full note rate and permanent principal-and-interest payment?
Who is funding the buydown, and what other concession could be used instead?
How much is deposited into the buydown account?
What happens to unused funds if the loan is refinanced or paid off early?
Does the loan program, property, and transaction qualify?
Would a lender credit or lower price create more value for your plan?

Use your numbers

Move from explanation to comparison.

Lenny can analyze a Loan Estimate or compare matched rate offers using the same cost-and-timeline logic.

Analyze an offer Compare matched rates

Official sources

Educational guidance only. Examples are hypothetical and do not include every loan cost or program rule. Final terms, pricing, eligibility, and disclosures must be confirmed by a licensed mortgage lender. Reviewed July 27, 2026.