Inputs
How to use this calculator
- Enter the loan amount, note rate, and loan term.
- Select a buydown plan, or choose Custom for your own reductions.
- Add monthly tax, insurance, and HOA if you want total monthly cost.
- Press Calculate to view savings, step-up risk, and the yearly schedule.
- Use the download buttons to export your latest results.
Formula used
The monthly principal-and-interest payment is computed with the standard amortization payment formula:
Where P = loan balance, r = monthly rate, n = remaining months.
For each buydown year, the reduced rate payment is calculated using the remaining balance and remaining term at that point. The monthly subsidy is the difference between the note payment and the reduced payment.
Example data table
| Scenario | Loan | Note Rate | Term | Plan | Est. Upfront Funds | Year 1 P&I |
|---|---|---|---|---|---|---|
| A | $350,000 | 6.75% | 30y | 2-1 | Varies by exact schedule | Lower than note payment |
| B | $275,000 | 6.25% | 30y | 3-2-1 | Varies by rate steps | Lower than note payment |
| C | $500,000 | 7.10% | 15y | 1-0 | Smaller than multi-year plans | Lower than note payment |
These examples show typical inputs. Your exact subsidy depends on rate, balance, and remaining term.
Payment behavior in temporary buydowns
A temporary buydown lowers the borrower’s interest rate for a short period while the loan itself keeps the full note rate. During the reduced years, the borrower pays a smaller principal and interest amount, and the difference is covered by a separate subsidy fund. This calculator compares the note payment to the reduced payment so you can see the step pattern.
Subsidy funding and escrow sizing
For each year of the plan, the subsidy equals the note principal and interest minus the reduced principal and interest, multiplied by the number of months in that year. For example, with a two one plan, year one may be two percentage points lower and year two one point lower. The upfront funds are the sum of all monthly differences.
Step up risk after the reduced period
When the buydown ends, the borrower payment returns to the note payment. The increase can be material, especially when the initial reductions are large. The schedule section highlights the payment jump so you can stress test budgets. A common review compares the final reduced year payment to the note payment and confirms the budget can absorb the change.
Using taxes insurance and HOA for PITI
Many borrowers budget on total monthly outflow rather than principal and interest alone. Adding monthly property tax, insurance, and HOA estimates a PITI style payment. In the early years, the extras stay the same while principal and interest changes, so the total payment line moves less than the principal and interest line. This view helps evaluate affordability at both the discounted and full rate levels.
Practical checks before choosing a plan
Buydowns are often funded by seller credits, builder incentives, or borrower cash, so confirm who pays and where the funds are held. Verify that the plan length matches the expected holding period. If refinancing is likely, compare the buydown cost to potential interest savings. Always validate rate caps, eligibility rules, and the date when payments reset.
FAQs
What is a temporary buydown?
It is a short term reduction to the borrower’s rate, funded by an upfront subsidy. The lender still receives the full note payment, while the subsidy covers the difference during the reduced period.
Who typically pays the buydown funds?
Often the seller, builder, or borrower funds it through a credit or cash at closing. The source depends on your contract and lender rules, so confirm the exact arrangement before relying on the savings.
Does the loan amortize at the reduced payment?
The loan is priced at the note rate. The note payment determines the true interest and principal allocation, while the borrower pays a reduced amount temporarily. The subsidy makes up the gap to the full payment.
What if I refinance or sell early?
If the loan ends before the buydown period finishes, unused subsidy funds may be applied according to lender and escrow terms. Ask how refunds or reallocation work in your program documents.
How should I enter taxes, insurance, and HOA?
Use current monthly estimates from your lender worksheet or prior bills. These items can change annually, so treat the PITI results as a planning view, not a guarantee of future bills.
Can I model a custom plan?
Yes. Choose Custom, pick one to five years, and enter the reduction in percentage points for each year. The calculator applies each reduction to the note rate and builds the yearly payment schedule.