Buying a home in a market with higher interest rates can be challenging, which is why it’s important to explore every available financing option. One effective but often overlooked strategy is the temporary interest rate buydown, which can make homeownership more affordable in the first few years of a mortgage. Whether you’re a first-time buyer or a real estate agent helping clients, understanding how temporary buydowns work can open more opportunities and increase purchasing power.

What Is a Buydown?

A buydown is a way to reduce a borrower’s interest rate by prepaying part of the interest upfront. This lowers monthly mortgage payments, helping buyers ease into homeownership costs.

There are two main types of buydowns:

• Permanent Buydown: The interest rate is reduced for the entire life of the loan by paying additional point fees upfront. This can be beneficial for buyers planning to stay in their home long term.
• Temporary Buydown: The interest rate is reduced for an initial period, which is usually the first one to three years. The interest rate then returns to the permanent note rate. This option is often funded through a seller credit, making it a short-term affordable strategy.

How Temporary Buydowns Work

Although borrowers must still qualify for their mortgage at the full note rate, a temporary buydown provides lower monthly payments during the buydown period, helping to ease the transition into homeownership.

Homeseed partners with multiple lenders offering the most common temporary buydown structures:

• 1-0 Buydown: Interest rate is 1% lower in year one, then returns to the original rate in year two.
• 1-1 Buydown: Interest rate is 1% lower in years one and two, then returns to the original rate in year three.
• 2-1 Buydown: Interest rate is 2% lower in year one and 1% lower in year two, before returning to the original rate in year three.
• 3-2-1 Buydown: Interest rate is 3% lower in year one, 2% lower in year two, and 1% lower in year three, before returning to the original rate in year four.

Example: On a $600,000 loan at a 6.50% note rate, a 2-1 buydown would reduce the rate to 4.50% in year one and 5.50% in year two. This would then reduce the monthly mortgage payment by about $752 in the first year and $386 in the second year.

A Smarter Refinancing Opportunity

One of the most overlooked benefits of a temporary buydown is its refinancing advantage. If you refinance before the buydown funds are fully used, any remaining seller credit is typically applied toward reducing your loan principal. This means you retain the value of those unused funds, unlike a permanent buydown where prepaid point fees cannot be recovered if you refinance early. With many housing economists expecting rates to ease in coming years, a temporary buydown can provide immediate relief now and position you for future savings through a refinance.

Why Buyers and Agents Are Leveraging Buydowns

In today’s higher-rate market, a buydown can be a powerful negotiation strategy. Rather than lowering a home’s price, a seller credit toward a buydown directly benefits the buyer’s monthly payment and expands the pool of qualified buyers. Temporary buydowns are also available on most conventional, FHA, and VA fixed-rate loans, making them accessible across a wide range of homebuyers.

Is a Temporary Buydown Right for You?

A temporary buydown may be an excellent fit if you:

·      Expect your income to rise over the next few years.

·      Plan to refinance when rates drop.

·      Want to ease into homeownership expenses while keeping flexibility.

Ready to Explore Your Options?

Connect with the Homeseed Lending Team to model side-by-side buydown scenarios and see how much lower your monthly payment could be. We’ll help you compare temporary vs. permanent buydown strategies and determine which approach aligns best with your financial goals.