2-1 Buydown (2% year 1, 1% year 2)
1-0 Buydown (1% year 1)
1-1 Buydown (1% year 1, 1% year 2)
3-2-1 Buydown (3% yr 1, 2% yr 2, 1% yr 3)
30 Years
20 Years
15 Years
Total Cost to Seller (Concession)
$0.00
This amount must be deposited into a custodial escrow account at closing.
Payment Schedule Breakdown (Principal & Interest)
Year
Effective Rate
Buyer's Payment
Monthly Subsidy
Annual Cost
Standard Payment (Year 3+):$0.00 per month (Principal & Interest only).
Understanding Seller Rate Buydowns
A seller rate buydown is a financing concession where the seller (or sometimes the builder) pays a lump sum at closing to temporarily reduce the interest rate on the buyer's mortgage. This upfront cost is deposited into an escrow account and released monthly to subsidize the buyer's mortgage payment for a specific period, usually the first 1 to 3 years of the loan.
Unlike a permanent rate buydown (buying discount points), a temporary buydown does not change the note rate for the life of the loan. Instead, it provides immediate monthly cash flow relief for the buyer, allowing them to ease into the full payment over time.
How the Buydown Structures Work
The name of the buydown typically indicates the percentage drop in the interest rate for each year:
2-1 Buydown: The rate is 2% lower in Year 1, 1% lower in Year 2, and returns to the full note rate in Year 3.
1-0 Buydown: The rate is 1% lower in Year 1, then returns to the full note rate in Year 2.
3-2-1 Buydown: The rate is 3% lower in Year 1, 2% lower in Year 2, 1% lower in Year 3, and returns to full rate in Year 4.
Calculating the Seller's Cost
The cost to the seller is mathematically exact. It is not an arbitrary fee. The cost is exactly equal to the difference between the monthly principal and interest (P&I) payment at the full note rate and the payment at the reduced rate, multiplied by the number of months in that period.
Example Calculation (2-1 Buydown):
If the Note Rate is 7% and loan is $400,000. Full Payment (7%): $2,661/mo Year 1 Payment (5%): $2,147/mo (Difference: $514/mo) Year 2 Payment (6%): $2,398/mo (Difference: $263/mo)
In a high-interest rate environment, sellers often find that offering a rate buydown is more attractive to buyers than a simple price reduction. For a buyer, the monthly savings from a buydown are often significantly higher than the savings generated by lowering the purchase price by the same amount.
For example, a $10,000 price cut might only lower a monthly payment by $60-$70. However, using that same $10,000 to fund a 2-1 buydown could lower the buyer's monthly payment by $500+ in the first year. This tool helps sellers maintain their sale price comparables while making the home affordable for the buyer.
function calculateMonthlyPayment(principal, annualRate, years) {
if (annualRate === 0) return principal / (years * 12);
var r = annualRate / 100 / 12;
var n = years * 12;
return principal * (r * Math.pow(1 + r, n)) / (Math.pow(1 + r, n) – 1);
}
function formatCurrency(num) {
return "$" + num.toFixed(2).replace(/\d(?=(\d{3})+\.)/g, '$&,');
}
function calculateBuydown() {
var principal = parseFloat(document.getElementById('mortgage-amount').value);
var noteRate = parseFloat(document.getElementById('note-rate').value);
var buydownType = document.getElementById('buydown-type').value;
var termYears = parseInt(document.getElementById('loan-term').value);
if (isNaN(principal) || isNaN(noteRate) || principal <= 0 || noteRate < 0) {
alert("Please enter valid positive numbers for Loan Amount and Note Rate.");
return;
}
// Base Payment (Full Note Rate)
var basePayment = calculateMonthlyPayment(principal, noteRate, termYears);
var totalCost = 0;
var breakdownHtml = "";
// Buydown Logic Configuration
var adjustments = [];
if (buydownType === '2-1') {
adjustments = [2, 1]; // Year 1 drops 2%, Year 2 drops 1%
} else if (buydownType === '1-0') {
adjustments = [1]; // Year 1 drops 1%
} else if (buydownType === '1-1') {
adjustments = [1, 1]; // Year 1 drops 1%, Year 2 drops 1%
} else if (buydownType === '3-2-1') {
adjustments = [3, 2, 1]; // Year 1 drops 3%, Year 2 drops 2%, Year 3 drops 1%
}
// Loop through subsidized years
for (var i = 0; i < adjustments.length; i++) {
var yearNum = i + 1;
var drop = adjustments[i];
var effectiveRate = noteRate – drop;
// Ensure rate doesn't go below 0
if (effectiveRate < 0) effectiveRate = 0;
// Calculate reduced payment based on the original amortization term (usually 30 years)
// IMPORTANT: The payment is calculated as if the loan was amortized at this lower rate for the FULL term
var reducedPayment = calculateMonthlyPayment(principal, effectiveRate, termYears);
var monthlySubsidy = basePayment – reducedPayment;
var annualSubsidy = monthlySubsidy * 12;
totalCost += annualSubsidy;
breakdownHtml += "
";
breakdownHtml += "
Year " + yearNum + "
";
breakdownHtml += "
" + effectiveRate.toFixed(2) + "%
";
breakdownHtml += "
" + formatCurrency(reducedPayment) + "
";
breakdownHtml += "
+" + formatCurrency(monthlySubsidy) + "
";
breakdownHtml += "
" + formatCurrency(annualSubsidy) + "
";
breakdownHtml += "
";
}
// Add Final/Standard Year Row
var finalYear = adjustments.length + 1;
breakdownHtml += "