The temporary buydown calculator.

1A fixed-rate loan with some of the interest prepaid

A temporary buydown is not a different kind of mortgage. It is an ordinary fixed-rate loan, conventional or FHA, with one addition: at closing, someone other than you deposits a lump sum with the loan servicer, and for the first one to three years that deposit pays part of your interest each month. Your note rate is fixed from day one and never changes. What changes is how much of each month's payment comes out of your account and how much comes out of the buydown fund.

The person funding it is almost always the seller of an existing home or the builder of a new one. It is written into the purchase contract as a seller concession, the same mechanism that pays a buyer's closing costs, and it is paid out of the seller's proceeds at closing. Occasionally a lender offers one as a promotion. Some programs also let a buyer fund one, but in that case the same dollars usually do more as a larger down payment or a permanent rate buydown, so ask before going that route.

2How the money moves

Take a 2-1 on a loan with a note rate in the sevens. In year one the buydown fund pays the difference between the payment at the note rate and the payment at two points below it. In year two it pays the difference at one point below. In year three the fund is empty and you pay the full amount. The servicer draws from the fund automatically; your statement shows the reduced payment, and the loan amortizes exactly as if you had paid the full amount all along, because in total you did. Nothing is deferred and nothing is added to the balance.

The cost of the buydown is simply the sum of those monthly differences. The calculator prices each year the way a lender's buydown schedule does: the payment at the reduced rate on the full loan amount over the full term, subtracted from the payment at the note rate, times twelve. That total, rounded to the cent, is the deposit the seller makes at closing.

3The four structures

A 3-2-1 reduces the rate by three points in year one, two in year two, and one in year three. A 2-1 reduces it by two points, then one. A 1-1 reduces it by one point for two years, which gives a flatter first two years for less money than a 2-1. A 1-0 reduces it by one point for a single year. Each larger structure costs roughly twice the one below it: a 3-2-1 runs about twice a 2-1, and a 2-1 about three times a 1-0. That is why the concession limit, not the seller's generosity, usually decides which one is possible.

4Who can pay, and how much

Because the buydown is funded by an interested party to the sale, it counts against the same contribution limit as any other seller-paid cost, closing costs included. On a conventional loan the limit depends on your loan-to-value: three percent of the price when the down payment is under ten percent, six percent when it is ten percent or more. The agency guidelines allow more at twenty-five percent down; the calculator uses the two limits most buyers meet. FHA allows six percent at any down payment. VA allows four percent, and the buydown funds count toward it.

Run the sample scenario and you can see why this matters. On a five percent down conventional loan, a 3-2-1 costs more than the three percent limit by itself, so no seller can fund one no matter how motivated. A 2-1 fits, with a little room left toward closing costs but not enough to cover all of them. On FHA, with its six percent limit, the same 2-1 plus every closing cost fits with room to spare. A buyer choosing between the two loans should know that before the offer is written.

5You qualify at the full payment

Both the conventional and the FHA rulebooks require the lender to qualify you at the note rate, not the reduced rate. That is a feature, not a catch. It means the step-up in year two or three is a payment the underwriter has already decided you can carry, and the buydown years are relief on top of an approval you would have received anyway. It also means a buydown does not stretch what you can buy; it makes the first years of what you can already buy easier.

6If you sell or refinance early

The buydown fund belongs to the loan, not to the seller who filled it. If you pay the loan off before the fund is used up, whether by selling or by refinancing, the buydown agreement says what happens to the balance. In the usual form it is applied to your loan payoff as a principal reduction, so you get the benefit either way. Read the agreement at closing so you know which form yours takes. This is also why a buydown pairs well with a rate you might refinance out of: if rates fall in year two, the remaining funds are not wasted.

7Buydown, price cut, or points

A seller with a fixed amount to give can hand it over three ways. A price cut lowers the loan, the down payment, and every payment for the life of the loan, by a small amount each month. A temporary buydown puts the whole amount into the first years, when the payment hurts most and the household is absorbing moving costs. A permanent buydown, meaning discount points, lowers the note rate for the life of the loan; its price changes with the market every day, so this calculator does not attempt it, and a live quote is the only honest way to compare it.

The price-cut card above does the first comparison for you. In a typical scenario the buydown delivers several hundred dollars a month of relief in year one and the price cut a few dozen, but the price cut keeps paying, and it takes well over a decade for it to catch up. Which is better depends on how long you expect to hold the loan and how much the first years matter to your budget. Sellers often prefer the concession because the recorded sale price holds, which matters to their appraisal and to the neighborhood's comparable sales.

8When it makes sense, and when it does not

It makes sense when you plan to stay, when the first years are the tight ones, when you are buying in a market where sellers are negotiating, and on new construction, where builders often fund buydowns as a standing incentive. It makes less sense when you would be counting on a refinance to rescue year three, when the seller would give the same dollars as a price cut and you expect to hold the loan for a long time, or when closing costs already use up the concession limit and the buydown would push the ask over it.

9How to ask for it in Utah

The mechanics are simple once the numbers are set. Your agent writes the seller concession into the purchase contract as a credit toward your closing costs, prepaids, and buydown funds; the amount is what this calculator calls the total to ask for, and it should never exceed the program limit. Your lender confirms the structure is available on your loan, prices it, prepares the buydown agreement, and sets up the fund at closing. The appraisal still has to support the full purchase price, since a concession does not lower it. Bring the link to this page to both conversations so everyone is working from the same figures, and if you want the numbers checked before the offer goes in, that is exactly what I do.