Mortgage Rate Buydown Calculator

Related Calculators

Table of contents

• How to use
• Common mistakes
• Definitions
• Methodology
• Limitations & assumptions
• Sources

Full note rate: The regular yearly interest rate on the mortgage before temporary buydown help.

Temporary buydown: A setup where money is placed in a buydown account and released monthly so the borrower pays as if the rate is lower during early years [2].

Buydown plan: The pattern of rate reductions in percentage points. A 2-1 plan means 2 points lower in year 1 and 1 point lower in year 2.

Estimated buydown fund needed: The total payment gap between the full note-rate payment and the temporary reduced payments during the buydown period.

Full note-rate payment: The principal and interest payment based on the full note rate and the full loan term.

Largest monthly payment jump: The biggest step up from one buydown payment level to the next payment level.

Seller or lender credit available: Money offered toward the buydown. In this calculator, credit left or extra cash needed equals credit minus the estimated buydown fund.

Permanent reduced rate: A lower rate that lasts for the loan, unlike a temporary buydown.

Mistake: Entering the home price in Loan amount ($).
Fix: Use the mortgage amount after the down payment, not the purchase price.

Mistake: Treating Full note rate (percent) as the lowered first-year rate.
Fix: Enter the regular note rate before the temporary buydown reduction.

Mistake: Picking a Buydown plan that makes the reduced rate below 0%.
Fix: Keep the actual Full note rate (percent) from your quote. Confirm the offered Buydown plan with your lender; a plan that implies a negative rate is outside the supported scope of this calculator. You can still compare deliberately hypothetical terms.

Mistake: Using Taxes, insurance, HOA, and other monthly costs ($) to estimate the buydown fund.
Fix: Enter monthly extras only to see the all-in displayed payment; they do not change Estimated buydown fund needed.

Mistake: Entering only Permanent reduced rate (percent) or only Permanent rate cost ($).
Fix: Enter both fields for the permanent-rate comparison, or leave both blank.

Mistake: Reading a negative Credit left or extra cash needed as bad formatting.
Fix: A negative number means the Seller or lender credit available ($) is short by that amount.

• The calculator estimates principal and interest payment changes only. Taxes, insurance, HOA dues, mortgage insurance, escrow rules, and fees can change the real monthly bill.
• The buydown fund is estimated as the total monthly payment gap during the temporary buydown period. Your lender's agreement controls the exact funding, accounting, and any unused funds.
• Expected payoff or refinance month is a timing estimate. Actual unused subsidy treatment can differ if the loan is sold, refinanced, paid off, or subject to special contract terms.
• The permanent-rate comparison is a simple break-even calculation. It does not estimate tax effects, points rules, future refinance rates, APR, or how long you will keep the loan.
• If the loan term is shorter than the selected buydown schedule, only months that exist inside the loan term are counted.
• Results depend on the entered loan amount, note rate, term, and plan. Small rate or loan amount changes can move the buydown fund by hundreds or thousands of dollars.

Payment formula

The calculator uses the standard fixed-rate principal and interest payment formula for the full note-rate payment and for each reduced buydown rate. Mortgage payments commonly separate principal and interest from other housing costs [1].

monthly_rate = annual_rate_percent / 100 / 12

term_months = loan_term_years * 12

if monthly_rate = 0, payment = loan_amount / term_months

otherwise, payment = loan_amount * monthly_rate / (1 - (1 + monthly_rate)^(-term_months))

Temporary buydown fund

The selected Buydown plan sets the yearly rate reductions in percentage points: 1-0 uses 1, 2-1 uses 2 then 1, 3-2-1 uses 3 then 2 then 1, and 1-1-1 uses 1 in each of the first 3 years. The reduced rate for each year is the full note rate minus that year's reduction.

reduced_rate_y = note_rate_percent - reduction_points_y

monthly_subsidy_y = full_note_payment - reduced_payment_y

months_y = min(12, max(0, term_months - 12 * (y - 1)))

yearly_subsidy_y = monthly_subsidy_y * months_y

total_buydown_fund = add all yearly_subsidy_y

For a $400,000 loan, 30-year term, 6.5% full note rate, and 2-1 buydown, the full note-rate payment is about $2,528.27 per month. The year 1 payment at 4.5% is about $2,026.74, and the year 2 payment at 5.5% is about $2,271.16. The estimated buydown fund is 12 times the year 1 gap plus 12 times the year 2 gap, or about $9,103.76.

Payment jump, credit, and exit timing

The payment path starts with the buydown-year payments and ends with the full note-rate payment. The largest monthly payment jump is the biggest positive step between neighboring payments. If an exit month is entered during the buydown period, the calculator also compares that month's reduced payment with the full note-rate payment.

max_payment_jump = largest positive value of next_payment - current_payment

If Seller or lender credit available ($) is entered, the calculator keeps the signed difference.

credit_surplus_or_gap = available_credit - total_buydown_fund

If Expected payoff or refinance month is entered, the calculator counts only subsidy months used before that month, with each buydown year capped from 0 to 12 months.

used_subsidy_by_exit = add monthly_subsidy_y * min(12, max(0, expected_exit_month - 12 * (y - 1)))

unused_subsidy_at_exit = total_buydown_fund - used_subsidy_by_exit

Extras and permanent-rate comparison

Taxes, insurance, HOA, and other monthly costs ($) are added to the displayed year 1 payment only. They do not change the buydown fund.

all_in_year_1_payment = year_1_payment + monthly_extra_costs

For a permanent-rate offer, the calculator computes the payment at the Permanent reduced rate (percent). If that payment is lower than the full note-rate payment, break-even time is the Permanent rate cost ($) divided by the monthly savings.

permanent_payment = payment(loan_amount, permanent_rate_percent, term_months)

if full_note_payment - permanent_payment > 0, permanent_breakeven_months = permanent_cost / (full_note_payment - permanent_payment)

otherwise, permanent_breakeven_months = N/A