Temporary Rate Buydowns: 2-1, 3-2-1 & 1-0 (2025 Guide)
Temporary Rate Buydown
A temporary buydown lowers your actual payment for 1–3 years, then steps up to the note rate. It’s funded by a subsidy (often seller/builder credit or lender pricing credit) held in an escrow and applied to your payment each month. You still qualify at the note rate (the full rate you’ll pay after the buydown period).
When a temporary buydown shines
- You want a lower payment now (first 1–3 years) while income/cash flow improves.
- Seller/builder credits are available and you’d rather use them to reduce payment vs. just closing costs.
- You expect to refinance or move within a few years.
When a permanent buydown may be better
- You plan to hold the mortgage long-term, and a lower note rate (via points) could save more over time.
- There aren’t enough seller/builder credits to fund a temporary buydown.
Common structures
- 1-0: 1% lower in year 1, then up to note rate
- 2-1: 2% lower in year 1, 1% lower in year 2, then note rate
- 3-2-1: 3% lower in year 1, 2% lower in year 2, 1% lower in year 3, then note rate
Qualification: Most programs require qualifying at the note rate, not the temporary rate.
Real-world example (approximate)
Loan amount: $400,000 • Term: 30-yr fixed • Note rate: 6.75%
- Note-rate payment (P&I): ~$2,594
- 1-0: Year 1 payment ~$2,334 (save ~$260/mo) → subsidy ≈ $3,121
- 2-1: Year 1 ~$2,087 (save ~$508/mo); Year 2 ~$2,334 (save ~$260/mo) → subsidy ≈ $9,215
- 3-2-1: Year 1 ~$1,852 (save ~$742/mo); Year 2 ~$2,087; Year 3 ~$2,334 → subsidy ≈ $18,118
(Payments shown are principal & interest only. Taxes, insurance, MI/HOA are extra. Actual pricing varies.)
Who can pay for the buydown?
- Seller or builder via concessions (subject to program caps)
- Lender via pricing credit
- Buyer (less common—usually better to compare permanent buydown if you’re paying it yourself)
Concession caps (quick view): Conventional primary residence typically 3% / 6% / 9% caps depending on down payment; investment properties often 2%; FHA ~6%; VA allows certain concessions plus normal closing costs. We’ll confirm your exact limits.
How we set it up (simple)
- Pre-approval (we’ll price temporary vs permanent buydowns side-by-side)
- Structure credits (seller/builder/lender) to fund the buydown escrow
- Lock & disclosures (clear cost and payment schedule)
- Close & enjoy lower payments (subsidy draws each month automatically)
Compare loan programs
Questions or want a side-by-side quote? Call (480) 336-3737.