Permanent vs. Temporary Mortgage Rate Buydowns: Which Saves You More?
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"A mortgage rate buydown is money paid up front to lower your interest rate. A temporary buydown, like a 2-1, lowers your payment for one to three years, and then your rate goes back up to the full rate on your loan. A permanent buydown uses discount points to lower the rate for the life of the loan. Which one saves more depends on how long you keep the loan and who pays for it.
What is a mortgage rate buydown?
Rates are high right now. The 30-year fixed rate averaged 7.28% in Freddie Mac's Primary Mortgage Market Survey for the week of Oct. 1, 2026. That is why so many builders and sellers offer to ""buy down"" the rate.
A buydown is simple. Someone pays money at closing. That money lowers the interest you pay. The person paying can be you, the seller, the builder, or a lender.
There are two kinds:
Temporary buydown. Your payment is lower for the first one, two or three years. Then it goes up to the full payment.
Permanent buydown. You (or someone else) pay ""discount points."" Your rate is lower for the whole loan.
They sound alike. They work very differently.
How does a temporary buydown work?
With a temporary buydown, your loan has one real rate. It is called the note rate. For the first few years, buydown money covers part of each payment, so you pay less.
Fannie Mae sets clear limits in its Selling Guide:
The rate you pay can be cut by no more than 3%.
Your rate can go up by no more than 1% a year.
The buydown can last no more than 3 years.
That is why you see names like 2-1 (2% off in year 1, 1% off in year 2) and 1-0 (1% off in year 1 only).
The buydown money is held in a separate custodial account. Each month, it pays the difference between your lower payment and the full payment.
Here is the part many buyers miss. The lender must qualify you at the note rate, not the lower rate. Fannie Mae's guide says so. So does HUD's FHA handbook. A 2-1 buydown makes your first two years cheaper. It does not help you qualify for a bigger loan.
Example: a 2-1 buydown on a $400,000 loan
This is an EXAMPLE only. It uses a $400,000, 30-year fixed loan with a note rate of 7.28%, the Freddie Mac average for the week of Oct. 1, 2026. Payments are principal and interest only.
Year | Rate you pay | Monthly payment | You save each month |
|---|---|---|---|
Year 1 | 5.28% | $2,216.25 | $520.60 |
Year 2 | 6.28% | $2,470.68 | $266.17 |
Years 3 to 30 | 7.28% | $2,736.85 | $0 |
Add up the savings: $520.60 x 12 plus $266.17 x 12. That is about $9,441. That is also what the buydown costs. A temporary buydown saves you exactly the money that was put into it. No more, no less.
How does a permanent buydown work?
A permanent buydown uses discount points. The CFPB explains it plainly: one point equals 1% of the loan amount. On a $400,000 loan, one point costs $4,000.
How much each point lowers your rate is set by each lender. It changes with the market, often every day. Freddie Mac's survey does not report average points anymore. It stopped in November 2022. So you have to ask your lender for a quote.
Example: the same $9,441 spent on a permanent buydown
This is an EXAMPLE only. The lower rates below are not quotes. They show what happens if a lender's pricing lets about $9,441 lower the rate by a certain amount.
If the rate drops to | Monthly payment | You save each month | Months to earn back $9,441 |
|---|---|---|---|
6.78% (0.50% lower) | $2,602.37 | $134.48 | about 70 months |
6.53% (0.75% lower) | $2,536.17 | $200.68 | about 47 months |
The savings are smaller each month. But they never stop. After the ""break-even"" month, every payment is pure savings, as long as you keep the loan.
If you sell or refinance before break-even, you lose. The points are already spent. For more on this math, read how to buy down your interest rate with points.
Temporary vs. permanent buydown: side by side
Temporary buydown (2-1, 1-0, 3-2-1) | Permanent buydown (discount points) | |
|---|---|---|
How long it lowers your payment | 1 to 3 years | The whole loan |
Rate you qualify at | The full note rate | The lower rate on your note |
Total savings | Equal to the money put in | Grows every month after break-even |
If you sell or refinance early | Leftover funds go toward the payoff or back to the borrower or lender, per the buydown agreement | Points are already spent |
Best fit | You want lower payments now while you settle in | You plan to keep the loan for many years |
On the refinance row: Fannie Mae says unused buydown funds should be credited to the payoff amount, or returned to the borrower or the lender, as the buydown agreement says.
Who can pay for a buydown on a new home?
Builders often pay. But there are limits. A builder is an ""interested party"" in your sale. So is the seller and any lender tied to them.
On a conventional loan, Fannie Mae limits what interested parties can pay toward financing costs. The limit depends on how much you put down:
Your loan-to-value (LTV) | Most an interested party can pay |
|---|---|
Over 90% (less than 10% down) | 3% |
75.01% to 90% | 6% |
75% or less (25% or more down) | 9% |
These limits are for a home you will live in (or a second home). They are figured on the lower of the sales price or the appraised value. Both temporary and permanent buydowns count. Fannie Mae also says this help cannot be more than your total closing costs.
On an FHA loan, HUD's handbook caps interested-party help at 6% of the sales price. That 6% includes closing costs, discount points, and both kinds of buydown.
So here is a quick EXAMPLE. You buy a $500,000 home with 20% down on a conventional loan. Your LTV is 80%. The builder can pay up to 6%, or $30,000, for closing costs, points and buydowns combined. A 2-1 buydown like the one above would use about $9,441 of that.
Which buydown saves you more?
Ask yourself three questions.
1. How long will I keep this loan? If it is many years, a permanent buydown usually wins, once you pass break-even. If you think you may sell or refinance within a few years, a temporary buydown or other help may fit better.
2. Is my budget tight right now? A temporary buydown gives the biggest drop in the first year. That can help while you pay for blinds, furniture and moving costs. But make sure you can afford the full payment in year 3. You qualified at that payment for a reason.
3. Can I split the money? Many offers let you mix closing-cost help, points and a buydown. Ask your lender to show you each option on its own Loan Estimate, using the same total dollars. Then compare.
One more tip. Nobody knows where rates will go next. Forecasts are guesses. Choose the option that works even if rates do not drop.
What this means for new-construction buyers
New homes add a few twists.
Timing. A build can take months. Most rate locks are shorter than that. Read when to lock your mortgage rate before you sign.
The builder's lender. Many builders tie their best incentives to their own lender. Fannie Mae counts a buydown paid by a lender tied to the builder as interested-party help. It still has to fit under the limits above.
Compare the same dollars. If a builder offers ""$X toward a buydown or closing costs,"" run both ways. A 2-1 buydown and a permanent buydown can cost the same and save very different amounts.
Ask about the assumable option, too. It rarely fits a brand-new home. Here is why: assumable mortgage vs. builder buydown.
Incentives change often, and they differ by community. Call 561-704-0091 for today's numbers.
Common Questions
Is a temporary buydown worth it?
It can be, if you want lower payments in the first one to three years. Just know that a temporary buydown saves you exactly what was put into it. After it ends, you pay the full note rate.
Do I qualify at the lower rate with a 2-1 buydown?
No. Fannie Mae and FHA both require the lender to qualify you at the full note rate. The lower payment does not help you qualify for a bigger loan.
What happens to buydown money if I sell or refinance?
Under Fannie Mae's rules, leftover temporary buydown funds should be credited to your loan payoff, or returned to the borrower or the lender as the buydown agreement says. Discount points for a permanent buydown are already spent.
How much does one discount point cost?
One point equals 1% of your loan amount, according to the CFPB. On a \$400,000 loan, one point costs \$4,000. How much it lowers your rate depends on your lender's pricing that day.
How much can a builder pay toward a buydown?
On a conventional loan, Fannie Mae allows 3%, 6% or 9% depending on your down payment, and the buydown counts toward that limit. On an FHA loan, the limit is 6% of the sales price, including closing costs, points and buydowns.
How long can a temporary buydown last?
Under Fannie Mae's rules, up to 3 years. The rate you pay can rise by no more than 1% each year, and the total cut can be no more than 3%.
Ready to take the next step?
Call 561-704-0091 to talk with a National House Search specialist, or Schedule a visit.
Related reading: 2-1 Buydown Explained · How to Buy Down Your Interest Rate With Points · When to Lock Your Mortgage Rate
This is general information, not financial, tax or legal advice. Figures checked October 6, 2026."