Buydown to Reduce Your Mortgage Interest Rate

If you are buying a home, you have probably looked at all kinds of ways to reduce your monthly mortgage costs. These can include putting down a higher down payment or improving your credit to get a lower interest rate. But did you know that you can actually pay to lower your interest rate by doing a buydown?

Discount points are an upfront cost paid in exchange for a lower mortgage interest rate. One point equals 1% of the loan amount. For example, one point on a $400,000 loan costs $4,000. The rate reduction is not fixed: it varies by lender, loan and market conditions. Compare Loan Estimates with and without points.

Most of the time, buyers are interested in buying mortgage points, but sometimes the seller will offer to buy points for the buyer to make the purchase more appealing. This is more common in a buyer’s market when the seller has to make extra concessions to get their home sold. Builders can also use the same strategy to sell new homes.

Considering a seller-paid buydown? Review our seller-paid buydown overview, then speak with a licensed loan originator about the terms that may apply to your transaction.

What is a 3-2-1 buydown?

A 3-2-1 temporary buydown subsidizes the borrower’s payments for three years. Payments are calculated using rates 3 percentage points below the note rate in year one, 2 points below in year two, and 1 point below in year three. The full note-rate payment begins in year four. A 2-1 structure uses reductions of 2 and 1 percentage points over two years.

The temporary subsidy does not change the loan’s note rate. For loans sold to Fannie Mae, qualification uses the note rate. Availability, funding sources and program requirements vary. Plan for the full payment after the subsidy ends.

What is an Interest Rate Reduction?

A permanent buydown uses discount points to obtain a lower note rate. On a fixed-rate loan, that rate applies while you keep the loan. Compare the upfront cost with the expected savings and how long you plan to keep the mortgage.

When should you buy points?

Estimate a simple break-even period by dividing the cost of points by the monthly payment savings. Consider whether you expect to sell or refinance before reaching that point. Compare points with other uses of your cash, including a larger down payment and emergency reserves.

Temporary buydowns and permanent discount points have different rules. Ask your licensed loan originator which options apply to your property and transaction.

Reviewed September 10, 2026. Sources: CFPB guidance on points and Fannie Mae temporary buydown guidance.