Rate Buydown Calculator

Is That Rate Buydown Actually a Good Deal?

Builders love advertising “2-1 buydowns” — a lower rate for your first year or two. It sounds generous. The question no flyer answers: would the same money serve you better as a price cut? Enter the offer as it appears on the flyer, and see.

What you’ll need: The numbers from the builder’s or lender’s offer — the home price, the rate, and the buydown type (it’s usually named right on the flyer: “2-1”, “1-0”, or discount points).

A buydown is not an ARM: your actual loan rate is fixed the whole time. The teaser years are a subsidy someone deposits into escrow to cover part of your payment — when it runs out, you’re back at the full rate you signed for. That’s also why lenders qualify you at the full rate, not the teaser.

What you’ll get below: Your real payment for each year, what the subsidy actually costs, the payment jump to budget for, and whether the same money would do more as a price reduction.

Your payment timeline (P&I on $405,000)
Year 1 @ 4.40%
$2,028
Year 2 @ 5.40%
$2,274
Year 3+ @ 6.40%
$2,533
This buydown costs $9,172 — deposited in escrow to cover the payment gap. If you refinance or sell during the buydown period, the unused balance is credited back to your loan.
The comparison the flyer never shows
The same $9,172 taken as a price cut would lower your payment by $57/mo — forever, not just the first 2 years — and you’d owe $9,172 less on the house.
Verdict: at 7 years in the home, the 2-1 buydown comes out ahead — roughly $9,172 of benefit vs $8,488 from the same money as a price cut. Short horizons favor buydowns.
Payment shock check
In year 3, your payment jumps to $2,533 — that’s +$505/mo vs year 1. Budget on the full payment, not the teaser. Lenders qualify you at the note rate for exactly this reason. Check your DTI at the full payment →

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The bigger question
A buydown changes your first years’ cash flow — but the buy-vs-rent answer depends on all 10. Run the full month-by-month analysis with this loan and see the whole picture.
Run your full rent vs buy analysis
WHAT TO DO NEXT
Check the full payment
Budget on the year-3 payment, not the teaser — see if a bank would approve it.
Run the full analysis
A buydown changes your first years’ cash flow — see the whole picture.
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