Temporary Buydowns (2-1 and 3-2-1)

Last updated August 24, 2026

A temporary buydown lowers your rate for the first year or two, then lets it step back up to the real rate. It's marketed as a lower rate — but it isn't one, and who pays for it is the whole story.

How a 2-1 (or 3-2-1) works

On a 2-1 buydown, your payment is figured as if the rate were 2% lower in year one and 1% lower in year two; in year three it snaps to the full note rate for the rest of the loan. A 3-2-1 does the same over three years (3% / 2% / 1% off). The lower payments aren't magic: the difference is prepaid into a subsidy account at closing and drawn down each month to cover the gap. The note rate on your loan never actually changed.

Who pays — and why that's the point

That subsidy is a fixed pot of money, and it's usually funded by the seller or a builder as a concession — occasionally by the lender. It's a common way for a seller to move a house without formally cutting the price. Crucially, you still have to qualify at the full note rate, not the teaser: the lender knows the low payment is temporary, so a buydown doesn't help you afford a bigger loan.

Not the same as buying points

A permanent discount point cuts your rate for the entire life of the loan. A temporary buydown changes nothing about the rate — it just pre-pays part of your early payments. If you're the one being asked to pay for a buydown, compare it head to head against permanent points using the break-even math; points usually win for anyone staying put.

A temporary buydown is most rational when a seller or builder is footing the bill and you have a credible reason to expect a refinance before the subsidy runs out. If you'd be paying for it yourself, run it against permanent points first.

The catch worth knowing

If you sell or refinance before the buydown period ends, the unused subsidy typically credits toward your payoff — so the money is rarely "lost." But that also means the buydown's value evaporates the moment you refinance, which is exactly when many people do. Treat it as what it is: a short-term payment cushion someone else usually buys — not a lower rate. See where the real market sits on our rate board.

By L.W. Martin, Founder — 20 years in the mortgage business, including 15 running his own brokerage. About → · Updated August 2026.