Temporary Buydowns vs. Permanent Rate Buydowns: Which One Fits Your Situation

If someone, a seller or a builder, is offering you money toward your rate, you usually have two ways to use it. You can buy your rate down temporarily for the first year or two, or you can buy it down permanently for the life of the loan. They both lower your payment. They do it in completely different ways, and picking the wrong one for your situation can cost you real money.

How a Temporary Buydown Works

A 2-1 buydown is the most common version. Your rate is reduced by 2% in year one and 1% in year two, then it steps up to your actual note rate for the rest of the loan. The money to fund that gap comes from a lump sum, usually paid by the seller or builder, that sits in an account and gets applied to your payment each month during the buydown period.

We ran this exact math in an earlier post: a $10,000 seller credit put into a 2-1 buydown produced about $508 a month in savings during year one. Directing that same $10,000 toward a straight price reduction instead only lowered the payment by about $65 a month, spread across the entire loan.

That gap is the whole argument for a temporary buydown. It front-loads the savings into the years when a new house payment usually feels the tightest, right after you have moved, furnished a place, and covered closing costs.

How a Permanent Buydown (Discount Points) Works

Discount points work differently. You pay a percentage of your loan amount upfront, typically 1% of the loan amount per point, and in exchange your interest rate drops for the entire life of the loan, commonly around 0.25% per point, though the exact reduction varies by lender and the day's pricing.

There is no step-up here. The rate you lock in with points is the rate you keep in year one and year thirty. To know if points are worth it, you run a break-even calculation: divide the cost of the points by your monthly savings. If that break-even lands well inside how long you actually plan to keep the loan, points can make sense.

The Real Difference: Timing, Not Just Savings

This is the part people miss. A temporary buydown is about smoothing the first year or two of homeownership. A permanent buydown is about the total interest you pay if you keep the loan a long time. They are solving two different problems.

A temporary buydown tends to make more sense when someone else, a seller or builder, is funding the buydown, not you, when you expect your income to rise or expenses to drop after the first year or two, or when you plan to refinance or move again within a few years anyway.

A permanent buydown using points tends to make more sense when you are paying for it yourself out of your own funds, when you plan to stay in the home and keep this loan long term past the break-even point, or when you want certainty in your payment from day one with no step-up to plan around.

What If the Seller Offers a Concession With No Instructions?

This happens more than you would think. A seller agrees to a credit and leaves it up to the buyer how to use it. That is exactly when this decision matters most, and it is worth running both scenarios with real numbers before you decide, not just picking whichever one sounds better.

As a Mortgage Broker, Quazel can model both the temporary and permanent version side by side using your actual loan numbers, so you are comparing real dollars, not guesses.

Expect to close one week early.

Frequently Asked Questions

What is the difference between a temporary and permanent rate buydown?

A temporary buydown, like a 2-1 buydown, lowers your rate for the first one to two years before stepping up to your permanent note rate. A permanent buydown, using discount points, lowers your rate for the entire life of the loan.

How much does one discount point cost?

One discount point typically costs 1% of your loan amount and reduces your interest rate by roughly 0.25%, though the exact reduction varies by lender and market conditions.

Is a 2-1 buydown worth it?

It depends on who is paying for it. When a seller or builder funds a 2-1 buydown, it is essentially free savings during your first two years of homeownership. When a buyer pays for it themselves, the math needs to be compared against a permanent buydown or a straight price reduction.

Can I combine a temporary buydown with discount points?

In many cases yes, if the seller credit or builder incentive is large enough to cover both. Your Loan Officer can show you how a combined structure would change your numbers.