temporary buy downs

What Is a Temporary Buy Down?

A temporary buy down is a way to reduce your interest rate temporarily for a specific period. The reduction can last as long as three years or as short as one year. The most common options are:

3-2-1 Buy Down
2-1 Buy Down
1-0 Buy Down

In most cases, the cost of this program is covered by the seller, who provides a credit at closing to make this work.

Temporary Buy Down Example

Let’s look at how this would play out with a real-world example. Suppose you have a $400,000 loan at a 6.5% par rate (the lowest rate available without extra discount points or fees) for a 30-year term. If you choose a 2-1 buy down, here’s how your payments will look:

Year 1: The interest rate drops by 2%, giving you a rate of 4.5%, resulting in a monthly payment of $2,026.74.
Year 2: The interest rate is reduced by 1%, giving you a rate of 5.5%, resulting in a monthly payment of $2,271.16.
Year 3: The rate returns to the original 6.5%, and your monthly payment will be $2,528.27 for the remaining term of the loan (unless you refinance, sell, or pay it off early).

Total Savings Over Two Years

In this example, you’ll save:

Year 1: $501.53 per month
Year 2: $257.11 per month

That gives you a total savings of $9,103.68 over the first two years.

Why I Don’t Recommend the Temporary Buy Down for Most Buyers

While a temporary buy down sounds great, there’s a catch. The program’s cost is directly tied to the amount you save, which means the cost equals your savings. In this case, the seller credit covers the $9,103.68 needed for the buy down.

But here’s the key question: If you're getting a seller credit to cover this cost, is there any real benefit?

The Real Issue

Rather than applying the seller credit toward the buy down, why not put it toward your closing costs? You’re likely already paying between $10,000 and $12,000 in closing costs, so wouldn’t it make more sense to use the credit upfront rather than stretch it out over two years?

When a Temporary Buy Down Might Make Sense

If budgeting is a challenge for you, and you'd like a structured way to force savings over the first two years of your mortgage, this might be an option to consider. However, if you’re financially disciplined, you might prefer to use the seller credit to reduce your immediate closing costs, saving money upfront and possibly investing the difference.

Alternatives: Permanent Buy Down vs. Temporary Buy Down

If you’re debating between a temporary buy down, a permanent rate buy down, or no buy down at all, take time to evaluate your personal financial situation. A permanent buy down involves a one-time cost that reduces your rate for the life of the loan, offering more predictable, long-term savings.

Final Thoughts

A temporary buy down can be a helpful tool in specific situations, but it’s not for everyone. For most buyers, there’s little to no net benefit, especially when the same seller credit can be applied to more immediate costs.