| Scenario | Loan | Note rate | Term | Buydown | Key output |
|---|---|---|---|---|---|
| Temporary 2-1 | $300,000 | 6.50% | 30 years | Year1: 4.50%, Year2: 5.50% | Shows total subsidy and PV estimate |
| Temporary 3-2-1 | $450,000 | 7.00% | 30 years | 4.00%, 5.00%, 6.00% | Highlights early payment drop and funding need |
| Permanent via points | $350,000 | 6.75% | 30 years | 2.0 points at 0.25% per point | Computes break-even and net interest savings |
Monthly payment (amortizing loan):
PMT = P × r × (1 + r)n / ((1 + r)n − 1)
- P is the loan amount.
- r is the monthly rate (APR ÷ 12).
- n is total months (years × 12).
Temporary buydown monthly subsidy:
Subsidy = NotePayment − ReducedPayment
Permanent buydown break-even (months):
BreakEven = UpfrontCost ÷ MonthlySavings
- Enter loan amount, note rate, and term length.
- Select temporary or permanent buydown type.
- For temporary, choose a pattern or set custom steps.
- For permanent, enter a new rate or points details.
- Optional: add extra costs and a discount rate for PV.
- Press Calculate to view results above the form.
- Download CSV or PDF for sharing and recordkeeping.
Buydown math in one glance
This calculator uses the amortizing payment formula: PMT = P×r×(1+r)^n / ((1+r)^n−1), where r is APR/12 and n is total months. For a reduced payment rate, it recomputes PMT with the same principal and term. A temporary buydown subsidy equals NotePayment − ReducedPayment each month.
Temporary buydowns for early-year affordability
On a $300,000 loan at 6.50% for 30 years, the note payment is about $1,896 per month. A 2-1 structure pays as if the rate were 4.50% in year one (≈$1,520) and 5.50% in year two (≈$1,703). That yields monthly subsidies near $376 and $193, totaling about $6,828 over 24 months. On $450,000 at 7.00%, the note payment is ≈$2,994. A 3-2-1 pays ≈$2,148, ≈$2,416, and ≈$2,698 in years one to three, implying total subsidies near $20,640.
Permanent buydowns and discount points
A permanent buydown reduces the rate for the full term, often by paying discount points at closing. On $350,000 at 6.75%, the payment is about $2,270. If the rate becomes 6.25%, the payment is about $2,155, saving roughly $115 monthly. With 2.0 points ($7,000) plus fees, break-even equals UpfrontCost ÷ MonthlySavings. Interest totals are estimated as Payment×Months−Principal to show long-run impact. If you keep the loan beyond break-even, the remaining months produce savings.
Using present value to compare offers
Temporary subsidies happen early, so timing matters. With a 4% discount rate, a subsidy paid in month 24 is worth less than the same amount in month 1. The calculator discounts each month’s subsidy to estimate a present value, letting you compare offers with totals but different schedules. Use the PV figure to compare a temporary subsidy to the upfront points of a permanent buydown.
Decision checklist before you lock
Confirm whether buydown funds sit in escrow and how unused amounts are handled if you refinance or prepay. Compare break-even to your expected time in the home, and stress-test the post-buydown payment against income and reserves. Also verify seller-credit limits and your debt-to-income thresholds.
What is an interest rate buydown?
A buydown is a paid reduction in your effective mortgage rate. Temporary buydowns lower the payment for early years, while permanent buydowns pay points to reduce the rate for the entire loan term.
Does a temporary buydown change amortization?
Your loan still amortizes at the note rate. The reduced payment is subsidized, so principal and interest are credited as if you paid the full note payment, using the buydown fund to cover the difference.
How is the temporary subsidy calculated here?
For each buydown period, the calculator computes a reduced monthly payment using the lowered rate and the full term. Subsidy equals NotePayment minus ReducedPayment, multiplied by the number of months in that period.
Are discount points always worth it?
Not always. Points make sense when you expect to keep the loan longer than the break-even time and when the rate reduction is meaningful. Compare upfront costs, monthly savings, and realistic holding period.
What discount rate should I use for present value?
Use a rate that reflects your alternative return or borrowing cost, often 3%–8% depending on market conditions. If you are unsure, run several rates to see how sensitive the present value is to assumptions.
What if I refinance or sell during a buydown?
You may not recover the full upfront cost if you exit early. Ask your lender how unused temporary buydown funds are applied and whether they reduce principal, closing costs, or are credited back to the payer.