Rate Buydown Calculator: Is That 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 — every month, not just the first 2 years — and you'd start out owing $9,172 less on the house. Below, both options are run over the same 7 years you said you’d stay, with the same cash at closing either way.
2-1 Buydown
Price cut
Payments over 7 yrs
$203,625
$207,978
Still owed at year 7
$365,571
$357,293
Total over 7 yrs
$569,197
$565,271
Payments you make over the horizon, plus the loan balance left when you sell. Undiscounted dollars, same sale price either way — so what’s left is the real difference between the two offers.
Verdict: over your 7 years, asking for the $9,172 as a price reduction instead leaves you about $3,926 better off — the subsidy runs out, a smaller loan doesn’t.
This counts dollars, not their timing. Counted this way a same-size price cut always finishes ahead of a temporary buydown: the escrow is a fixed pot that runs dry, while a smaller loan keeps working. The figure above is what that gap is worth over your stay. What a buydown does buy is timing — the help lands in years 1–2, when money is often tightest. That can be a fair reason to take it; "it costs less" is not.
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.