Temporary Buydown Calculator

Rising interest rates have made home financing more expensive in recent years. Many borrowers have begun seeking temporary buydowns to make homeownership more affordable in the short term.  Use our free temporary buydown calculator, shown below, to understand how a buydown may help you.

Calculate your temporary rate buydown:

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The calculations in this tool are for illustrative purposes only. Monthly payments only include principal and interest, and do not consider taxes, insurance, or any other escrows. CapCenter does not consider temporary buydowns when determining your ability to repay credit obligations - the note rate is used to determine your ability-to-repay. Rates entered on the calculator do not represent CapCenter's current interest rates.
*CapCenter supports lender paid 1-0 temporary buydowns. All other temporary buydown types (e.g. 1-1, 2-1, 3-2-1) must be paid by a builder or seller. Visit our Product Offer Details to learn more about CapCenter's temporary buydown program (limitations apply).

How to use our temporary buydown calculator.

To calculate savings for a temporary buydown, complete the following fields:

  1. Buydown Type - the buydown structure you're applying for. If you want a CapCenter funded buydown, select 1-0. Buydown structures are explained detail within the "Types of temporary buydowns" section.
  2. Loan Term - the length of your mortgage. 30 years is the most common option.
  3. Loan Amount - the total amount of financing you require to purchase or refinance your home.
  4. Interest Rate - the note rate you have been quoted for a mortgage with a temporary buydown.

The buydown calculations will display your monthly principal & interest payments, these payments do not consider other costs included in your mortgage like mortgage insurance, homeowners insurance, and property taxes. The savings represent the amount of interest each year that is subsidized by the lender, seller, or builder.

What is a temporary buydown?

Temporary buydowns reduce the amount of interest you pay for a fixed amount of time. This mortgage feature is typically paid for by either the lender, seller, or builder (for new construction). The party responsible for the buydown will pay the total cost at closing. This money is placed in an escrow account and is used to subsidize your monthly mortgage payments until the buydown expires.

Types of temporary buydowns.

Our calculator includes most common buydown structures, which are 1/0, 1/1, 2/1, and 3/2/1 buydowns. Each buydown feature is detailed below.

1-0 Temporary Buydown

A 1-0 temporary buydown reduces your interest rate by 1% during your first year of mortgage payments. CapCenter supports 1-0 buydowns paid by the lender, seller, or builder. Your savings are calculated as follows.

Year
1-0 Buydown Savings Calculation
1
CapCenter, seller, or builder pays 1% of your interest rate during year 1.
2
You pay the full interest rate for the remaining life of the mortgage.

1-1 Temporary Buydown

A 1-1 temporary buydown reduces your interest rate by 1% during your first two years of mortgage payments. CapCenter supports 1-1 buydowns paid by the seller or builder. Your savings are calculated as follows.

Year
1-1 Buydown Savings Calculation
1
Seller or builder pays 1% of your interest rate during year 1.
2
Seller or builder pays 1% of your interest rate during year 2.
3
You pay the full interest rate for the remaining life of the mortgage.

2-1 Temporary Buydown

A 2-1 temporary buydown reduces your interest rate by 2% during the first year, and 1% during the second year of mortgage payments. CapCenter supports 2-1 buydowns paid by the seller or builder. Your savings are calculated as follows.

Year
2-1 Buydown Savings Calculation
1
Seller or builder pays 2% of your interest rate during year 1.
2
Seller or builder pays 1% of your interest rate during year 2.
3
You pay the full interest rate for the remaining life of the mortgage.

3-2-1 Temporary Buydown

A 3-2-1 temporary buydown reduces your interest rate by 3% during the first year, 2% during the second year, and 1% during the third year of mortgage payments. CapCenter supports 3-2-1 buydowns paid by the seller or builder. Your savings are calculated as follows.

Year
3-2-1 Buydown Savings Calculation
1
Seller or builder pays 3% of your interest rate during year 1.
2
Seller or builder pays 2% of your interest rate during year 2.
3
Seller or builder pays 1% of your interest rate during year 3.
4
You pay the full interest rate for the remaining life of the mortgage.

Should I get a temporary rate buydown?

A temporary buydown can save you money in the long-run, but they are not always profitable. Mortgages with a temporary buydown may have a slightly higher note rate compared to a mortgage without a temporary buydown. However, if rates fall enough, you can refinance your mortgage at the lower rate.

Buydown savings example:
Lets say you're considering adding a 1-0 buydown to your 30-year mortgage, currently quoted at a 7% interest rate. Your lender informs you that the buydown is a valid option; however your rate will increase to 7.25%. This means that you will effectively pay a 6.25% rate during your first year and pay a 7.25% rate years 2 - 30.

Now let's say rates have fallen substantially after your buydown expires. You have been quoted 6.25% to refinance your home into a new 30-year mortgage. Congratulations - you have avoided the 7.25% interest rate!

As you can see, temporary buydowns can be a great choice if you plan to refinance in the near future or if you're seeking short-term savings. Unfortunately, rates are not guaranteed to fall. Temporary buydowns could cost more money in the long-run in a stagnant or rising interest rate environment.

Can the borrower pay for a temporary buydown?

The short answer is no, you cannot pay for your own temporary buydown. You can pay for a permanent buydown though, through discount points. Discount points are paid at closing, and they permanently reduce the interest rate on your mortgage. Check out our learning article "Let's Get to the Point" to learn more.