Temporary buydown vs permanent points
Same goal, a lower payment, but they work differently and suit different plans:
| Temporary buydown (2-1, 3-2-1, 1-0) | Permanent points | |
|---|---|---|
| What it does | Lowers your payment for the first 1 to 3 years, then steps up to the note rate | Lowers the note rate for the life of the loan |
| How it works | A prepaid interest subsidy held in escrow and drawn down monthly | An upfront cost folded into your loan pricing, with no escrow |
| Who usually pays | Often the seller, builder, or lender as a concession; a buyer can also fund it | Usually the buyer, or funded from a concession |
| The qualifying rate | You qualify at the full note rate, and DTI uses the permanent payment | You qualify at the lower bought-down rate, because points lower the note rate itself |
| If you sell or refinance early | Unused buydown funds apply to your payoff, so you do not lose them | Points already spent are not refunded |
| Who it suits | Expecting income to rise, or planning to refinance later | Staying long term for permanent savings |
| Run your numbers | Temporary buydown calculator → | Discount points calculator → |
Both calculators carry editable, neutral default inputs and label every output as an estimate, not a quote. This page stays in words on purpose, so you reach the figures with your own numbers.
Buydown vs a price cut, for the same seller dollars
When a seller or builder has a set amount to give, the question is what to do with it:
| Buydown | Price reduction | |
|---|---|---|
| Effect on the monthly payment | Larger near-term relief (temporary) or a permanent rate cut (points) | Smaller, but permanent |
| Effect on the loan amount | Unchanged | Lower for the life of the loan |
| Effect on sale price and comparable sales | Price stays and the comps are preserved | Sale price and the comps drop |
| Who tends to prefer it | Builders and sellers protecting price and comps | Buyers wanting a smaller balance |
| Concession-cap interaction | A seller-paid buydown counts inside the IPC caps | A price cut is not a concession and does not touch the caps |
The concession-cap figures themselves live in the seller concessions guide; a seller-paid buydown counts inside those caps, while a price cut does not.
The points generic articles miss
1. On a temporary buydown, you qualify at the note rate, not the lower one. On a temporary buydown you qualify at the full note rate, and your debt-to-income is figured on the permanent payment, not the reduced early payment. So a temporary buydown does not fix a debt-to-income problem the way people assume; the underwriter still uses the full payment.
2. Unused buydown funds are not lost. If the loan is refinanced, sold, or paid off before the buydown period ends, the remaining escrow is applied to the loan payoff; you do not forfeit it. They do not revert to the seller. That is a genuine edge over permanent discount points, where the cost is sunk once paid.
3. On new construction, a builder-paid buydown protects the comps. A price cut lowers the recorded sale price, which drags down the comparable sales for the rest of the development. A buydown gives the buyer relief while holding the headline price, which is why builders often favor it over cutting the price.
The qualify-at-note-rate rule and the unused-funds rule are set by agency buydown provisions; see Sources below.
How this ties into a new-construction deal
A builder-paid buydown is a concession, so it lives inside the same interested-party-contribution framework as any other seller credit. A seller- or builder-funded buydown, temporary or permanent, counts against the interested-party-contribution (IPC) cap for the loan type. You can see the cap figures on the seller-concessions guide. That makes the choice between a buydown and a price cut a deal-structuring decision, not just a math one: the same dollars can buy near-term payment relief, a permanent rate cut, or a smaller balance, and they interact with the caps differently.
Go deeper: Seller concessions and IPC caps, New construction vs resale.