Rate Buydowns Explained: How Sellers Can Help Lower Your Payment

Higher mortgage rates have many buyers wondering how to make a monthly payment work. One of the most useful tools in today's market is the rate buydown. A buydown means paying money upfront, usually at closing, to lower the interest rate on your loan. And here's the good news: that money doesn't always have to come from you.

Two Main Types of Buydowns

Temporary Buydown (Like a 2-1)

Your rate starts lower for the first few years, then steps up to the full rate. With a 2-1 buydown, the rate is 2 points below your note rate in year one, 1 point below in year two, and at the full rate from year three on. For example, a 6.5% loan would feel like 4.5% in year one and 5.5% in year two. The upfront cost covers the difference in those early payments.

Permanent Buydown (Discount Points)

You pay points at closing to lower your rate for the life of the loan. One point equals 1% of the loan amount, and how much each point lowers your rate depends on your lender and the market.

A temporary buydown gives you breathing room in the first years of ownership. A permanent buydown pays off the longer you keep the loan.

Why Sellers Are Offering Them

In today's Northern Nevada market, many sellers are open to concessions to attract buyers. Instead of simply cutting the price, a seller can put that money toward a buydown.

This can be a win for both sides. A $10,000 price reduction lowers a monthly payment by only a modest amount. That same $10,000 put toward a buydown can often lower the payment more, especially in the first years. The seller keeps a stronger sale price, and the buyer gets a more comfortable payment.

It's worth running the numbers both ways, because the best choice depends on your loan, your budget and how long you plan to stay.

Questions to Ask Your Lender

• What would my payment be with a 2-1 buydown versus a permanent buydown?
• How much would each option cost at closing?
• What happens to unused buydown funds if I refinance early?
• Is there a limit on how much the seller can contribute for my loan type?

We Can Help You Negotiate

A buydown is one of many tools we use to help buyers make homeownership work, and to help sellers attract strong offers. Whether you're buying or selling in Carson City, Reno, Sparks, Dayton, Minden or Gardnerville, we'd be happy to talk through your options. Reach out anytime.