How Mortgage Rate Buydowns Actually Work

by Antonio Vaziri

With mortgage rates spending most of 2026 in the mid-to-upper 6% range, buydown has become one of the most-used words in real estate — and one of the least understood. Buyers hear it and assume it is a gimmick. Sellers hear it and assume it costs them a fortune. Neither is quite right.

Here is what a buydown actually is, in plain language.

The basic idea

A buydown means paying money up front, at closing, to get a lower interest rate on the loan. That is it. The money can come from the buyer, the seller, the lender, or a builder — and who pays is a negotiating point, not a rule.

There are two main flavors, and they work very differently.

Permanent buydowns (discount points)

A discount point costs 1% of the loan amount and permanently lowers the interest rate for the life of the loan. How much it lowers the rate varies by lender and market conditions — it is not a fixed amount, and you should ask your lender for the actual quote rather than relying on a rule of thumb.

The math that matters is your break-even point: divide what the points cost by the monthly payment savings, and you get the number of months you need to keep the loan for the purchase to pay off.

If your break-even is 48 months and you expect to sell or refinance in three years, points do not make sense. If you are buying a long-term home and plan to stay, they can be one of the better dollars you spend. Run your own numbers rather than accepting a general recommendation.

Temporary buydowns (2-1, 1-0)

A temporary buydown reduces the rate for the first year or two, then it returns to the note rate for the remainder of the loan.

In a 2-1 buydown, your rate is two percentage points below the note rate in year one, one point below in year two, and at the note rate from year three forward. A 1-0 buydown does the same thing for a single year.

The money to cover the difference is deposited into an escrow account at closing and released monthly to the lender. It is real money — it just gets spent over time instead of all at once.

Two things buyers must understand about temporary buydowns:

First, you qualify at the note rate, not the buydown rate. The lender underwrites you at the higher, permanent rate. A temporary buydown does not increase your purchasing power. It softens your payment in the early years.

Second, the payment goes up on schedule. If your plan depends on refinancing before year three, understand that refinancing is not guaranteed — it depends on where rates are then, which nobody can promise you.

Why sellers offer them

Here is the part sellers often miss. A seller-paid buydown can be a more efficient concession than a price reduction.

A price cut of a given amount lowers the buyer’s monthly payment modestly. That same amount applied to a rate buydown can lower the buyer’s early monthly payment considerably more — because it is targeting the interest rate directly rather than the loan balance.

For a seller trying to move a property that has been sitting, that difference in perceived affordability can be what gets an offer written. It is worth modeling both options before automatically cutting the price.

A few limits to know: loan programs cap how much a seller can contribute, and those caps vary by loan type and down payment. Not all loan products permit temporary buydowns. And the concession has to be documented in the purchase contract properly. Your lender and your agent need to coordinate on this before the offer is written, not after.

The honest summary

Buydowns are a real tool, not a trick. They are most useful when:

A buyer plans to stay long-term and can benefit from permanent points
A buyer needs early payment relief and understands the payment will rise
A seller wants to improve affordability without a headline price cut

They are least useful when a buyer is stretching to afford a home only because of a temporary rate, or when someone is counting on a refinance that may not arrive.

If you are buying or selling in the San Fernando Valley and want to model what a buydown would actually do to the numbers — on either side of the transaction — reach out. It takes one conversation with a good lender to know whether it is worth pursuing.