Mortgage Buydown Calculator

What Is a Mortgage Buydown — and Should You Use One?

A mortgage buydown is a financing strategy that temporarily lowers your interest rate — and your monthly payment — during the first years of your loan. The "discount" is funded upfront, typically by the home seller, a builder, or sometimes the lender, in the form of a closing cost concession deposited into an escrow account. Each month, that escrow pays the difference between your reduced rate and your actual note rate.

Buydowns have surged in popularity across the Texas Hill Country and the I-35 Corridor as home builders and sellers compete to keep housing affordable at today's rates. If you're buying a new construction home in New Braunfels, Seguin, Kyle, or San Marcos — there's a very good chance your builder is already offering one.

The Three Most Common Buydown Structures

The 2-1 buydown is the most widely used structure today. It gives buyers meaningful payment relief in Year 1, a softer transition in Year 2, then full payment by Year 3. Many buyers in this rate environment plan to refinance once rates drop — meaning they may never reach the full note rate payment.

The 3-2-1 buydown offers the steepest initial savings and is common with production builders who want to make headline payments as low as possible. The tradeoff is a higher total buydown cost — which means you'll need to negotiate that concession into your contract.

How Much Does a Buydown Cost?

The total cost of a buydown equals the sum of the monthly payment differences over the buydown period. On a $380,000 loan at a 6.5% note rate, for example:

• 2-1 Buydown: Typically costs 2–3% of the loan amount (~$7,600–$11,400)
• 3-2-1 Buydown: Typically costs 4–5% of the loan amount (~$15,000–$19,000)
• 1-0 Buydown: Typically costs 1–1.5% of the loan amount (~$3,800–$5,700)

These funds come from the seller or builder as a concession — they don't come out of your pocket as a buyer. That's the beauty of a well-negotiated buydown: you get years of payment savings funded by someone else's money.

Use the calculator above to see the exact buydown cost for your specific purchase price, rate, and buydown structure.

Buydowns in the Texas Hill Country & I-35 Corridor

With 33 years in the mortgage business and a focus on Central Texas, I've watched the buydown go from a niche tool to one of the most-asked-about products in the market. Here's what I'm seeing across the key markets I serve:

Buydowns vs. Permanent Rate Buydowns: What's the Difference?

A temporary buydown (2-1, 3-2-1, 1-0) lowers your rate for a defined period, then reverts to the note rate. The cost is usually covered by a seller or builder concession.

A permanent buydown (also called "buying points" or "discount points") permanently reduces your interest rate for the life of the loan. Each point costs 1% of the loan amount and typically reduces the rate by 0.125–0.25%. This makes sense if you plan to stay in the home long-term and won't refinance.

In today's rate environment — where many buyers anticipate refinancing within 2–4 years as rates moderate — a temporary buydown often provides better value than buying permanent points. You get the payment relief now, and you refinance later at a lower market rate without leaving money on the table in permanent points.

Buydowns and Mortgage Insurance: What to Know

Whether you're using a conventional loan with PMI or an FHA loan with MIP, mortgage insurance is calculated on your note rate loan balance — not your bought-down rate. That means your MI payment stays consistent across all buydown years, which is why it's important to factor it into your full PITI picture.

• Conventional PMI typically runs 0.5%–1.5% annually depending on your LTV and credit score. It cancels once your equity reaches 20%, making it a temporary cost — much like the buydown itself.
• FHA MIP includes a 1.75% upfront premium (financed into the loan) plus an annual premium of 0.55% for most loans. If your LTV at origination exceeds 90%, MIP applies for the life of the loan. FHA buydowns are fully permitted under HUD guidelines.

If you're close to 20% down, it may be worth increasing your down payment to eliminate PMI — freeing up cash flow that makes the transition to the full note rate in Year 3 much more comfortable.

Frequently Asked Questions About Mortgage Buydowns

Ready to Run Your Own Scenario? Let's Talk.

The calculator above gives you a powerful starting point — but every deal has nuances that spreadsheets can't capture. Seller negotiation strategy, builder lender vs. outside lender comparisons, how your credit score affects the rate, whether FHA or conventional makes more sense for your situation — these are the conversations that make a real difference.

I'm Steve Tomaselli, a licensed mortgage loan originator with 33 years of experience and a deep focus on the Texas Hill Country and I-35 Corridor. I'm licensed in Texas, Florida, and Massachusetts, and I work with Edge Home Finance Corporation — a direct lender with access to conventional, FHA, VA, USDA, DSCR, and non-QM programs.

Whether you're a first-time buyer in New Braunfels, a move-up buyer in Boerne, or an investor in the San Antonio metro, I can help you structure a buydown that actually pencils out — and get you preapproved so sellers and builders take you seriously.