The cost of a mortgage rate buydown runs from a few thousand dollars to the low tens of thousands, driven by three things: your loan amount, whether the buydown is permanent or temporary, and how far below the note rate you want to go. A permanent buydown is priced in discount points, where one point equals 1% of the loan principal. A temporary buydown is priced as the total payment savings the lender has to cover during the reduced-rate years, deposited into escrow at closing.
What a Permanent Buydown Costs
A permanent buydown lowers your interest rate for the full life of the loan, and you pay for it by purchasing discount points at closing. Each point is exactly 1% of your loan amount. On a $300,000 mortgage, one point is $3,000. On a $500,000 mortgage, one point is $5,000. Points don’t have to be whole numbers; you can buy 0.5 points, 1.375 points, or whatever increment your lender offers.1Consumer Financial Protection Bureau. How Should I Use Lender Credits and Points (Also Called Discount Points)?
How much rate reduction you get per point is not fixed. A common rough estimate is 0.25% per point, but the actual reduction depends on your lender, the loan type, and market conditions at the time you lock. One lender might offer a bigger reduction per point than another at the same price, so the CFPB recommends comparing rate sheets from several lenders rather than assuming a standard ratio.1Consumer Financial Protection Bureau. How Should I Use Lender Credits and Points (Also Called Discount Points)?
A quick sense of scale on a $400,000 loan: one point is $4,000, two points is $8,000, and three points is $12,000. Lenders generally will not let you load points high enough to classify the loan as a high-cost mortgage or push it outside Qualified Mortgage limits on total points and fees, so there is a practical ceiling well below “whatever you can afford.”2Consumer Financial Protection Bureau. My Lender Says It Can’t Lend to Me Because of a Limit on Points and Fees on Loans. Is This True?
What a Temporary Buydown Costs
Temporary buydowns reduce your rate for the first one to three years and then step up to the full note rate. The two common structures are the 2-1 buydown and the 3-2-1 buydown.
With a 2-1 buydown, you pay as if your rate were two percentage points lower in year one, one point lower in year two, then the full note rate from year three onward. On a 6.5% note, that is 4.5%, 5.5%, 6.5%. A 3-2-1 adds a year on the front at three points below: 3.5%, 4.5%, 5.5%, then 6.5%.
The price of the buydown equals the total difference between what you would have paid at the note rate and what you actually pay during the discounted years. That full amount is deposited into a dedicated escrow account before closing, and the lender draws from it each month to cover the gap between your reduced payment and the note-rate payment.3Fannie Mae. B2-1.4-04, Temporary Interest Rate Buydowns For VA loans, those funds must sit in a separate escrow account protected from the creditors of every party involved.4Department of Veterans Affairs. Temporary Buydowns – VA Home Loans
A concrete number: on a $250,000 loan at 6.375%, a 3-2-1 buydown costs roughly $11,100 upfront. On a $400,000 loan the figure scales proportionally higher. Ask your lender to run the exact calculation for your loan amount and note rate.
One qualifying detail worth knowing before you count on a temporary buydown to stretch your budget: Fannie Mae requires you to qualify at the full note rate, not the discounted rate. The lower early payments help your monthly cash flow but will not let you borrow more.3Fannie Mae. B2-1.4-04, Temporary Interest Rate Buydowns
Who Actually Pays, and How Much Sellers Can Cover
Buydowns are frequently paid by the seller as a concession, especially when inventory is slow to move. Every loan program caps those contributions, and the cap determines how much buydown the seller can fund before you have to make up the difference out of pocket.
- Conventional loans (Fannie Mae): the seller can contribute up to 3% of the sale price or appraised value (whichever is lower) with less than 10% down, 6% with 10% to 24.99% down, and 9% with 25% or more down. Investment properties are capped at 2% regardless of down payment.5Fannie Mae. Interested Party Contributions (IPCs)
- FHA loans: seller concessions are limited to 6% of the sales price. Contributions above that reduce the loan amount by the overage.
- VA loans: seller concessions are capped at 4% of the home’s reasonable value shown on the VA Notice of Value. Normal closing costs and market-rate discount points generally fall outside that 4% cap; the limit targets items like paying the buyer’s debts or funding prepaids beyond what is customary.6Veterans Affairs. VA Funding Fee and Loan Closing Costs
If the buydown you want costs more than the seller is allowed to contribute, you cover the balance at closing. Builder-funded buydowns on new construction are a common way to get the full cost paid by the other side without touching your cash.
Figuring Out Whether the Cost Is Worth It
For a permanent buydown, the number that matters most is your breakeven period: how long you have to keep the loan before the monthly savings from the lower rate exceed what you paid in points.
The formula is simple. Divide the total cost of the points by your monthly payment savings. Pay $6,000 in points, drop the monthly payment by $100, and you break even in 60 months. Every month after month 60 is pure savings. Sell or refinance before then and the points cost you more than they returned.
The practical takeaway: if you expect to hold the loan seven or more years, points usually pencil out. If there is a real chance you’ll move or refinance inside three to four years, keep the cash. Breakeven shifts with loan size and the specific rate reduction your lender offers, so run the math on your actual numbers.
What You Get Back If You Sell or Refinance Early
Permanent buydown money is sunk. If you paid $8,000 in points and sell two years in, that money is gone. You had the lower rate while you held the loan, but you did not reach breakeven.
Temporary buydown money is not sunk the same way. Because the funds sit in a dedicated escrow account, anything the lender has not yet drawn is still there when the loan pays off. If the mortgage is paid in full before the buydown period ends, the remaining escrow balance is typically credited toward the payoff or returned to the borrower, depending on the buydown agreement. If a buyer assumes the mortgage, the remaining funds can continue to reduce payments under the original schedule. That makes a temporary buydown the lower-risk choice when there is any real chance of selling or refinancing early.