First Savings Mortgage
Get Started

Mortgage Buydowns

Mortgage Buydowns: A Smart Strategy for Homebuyers

Purchasing a home is one of the most significant financial commitments you can make. Given the fluctuating nature of interest rates, many homebuyers and lenders explore options to make mortgage payments more manageable. One such strategy is a mortgage buydown, which can provide temporary or permanent relief on interest rates. Let’s break down what mortgage buydowns are, how they work, and whether they might be the right option for you.

What is a Mortgage Buydown?

A mortgage buydown is a financing arrangement where an upfront fee is paid to reduce the interest rate on a mortgage. This can be done by the borrower, the home seller, or even the lender, depending on the agreement. The goal is to lower the monthly mortgage payments for a set period or for the life of the loan.

Types of Mortgage Buydowns

There are primarily two types of mortgage buydowns:

  1. Temporary Buydowns – These involve an initial period (typically 1-3 years) during which the home buyer enjoys reduced interest rates before the rate returns to its original fixed rate. Common structures include:
    • 1-0 Buydown: The rate is reduced by 1% in the first year and returns to the full rate the second year.
    • 1-1 Buydown: An extremely rare option. The rate is reduced by 1% in the first year and 1% the second year before returning to the fill rate the third year.
    • 2-1 Buydown: The rate is reduced by 2% in the first year and 1% in the second year, before returning to the full rate in the third year.
    • 3-2-1 Buydown: The rate is reduced by 3% in the first year, 2% in the second, and 1% in the third year before reaching the full rate.
  2. Permanent Buydowns – In this scenario, the borrower pays discount points (prepaid interest) upfront to secure a
    lower interest rate for the entire duration of the loan. Each discount point typically costs 1% of the loan amount and
    can reduce the interest rate by approximately 0.25%.

THE FIRST SAVINGS MORTGAGE BUYDOWN DIFFERENCE

There are now even more exclusive First Savings Buydown Options to make homeownership more affordable and help you sell your home faster. No buyer or seller contributions required.

Minus Two
  • 2-1 Temporary Buydown
  • 1-1 Temporary Buydown
Minus One
  • 1-0 Temporary Buydown

Benefits of a Mortgage Buydown

  • Lower Initial Payments: Temporary buydowns can make homeownership more affordable in the early years.
  • Increased Buying Power: Reduced rates can allow buyers to qualify for larger loan amounts.
    Seller Incentives: Sellers may offer a buydown as an incentive to attract buyers, especially in a slower real estate market.
  • Potential Long-term Savings: Permanent buydowns can lead to significant interest savings over the life of the loan.

Is a Mortgage Buydown Right for You?

Mortgage buydowns can be a great tool for homebuyers looking to ease the burden of mortgage payments, particularly in the early years of homeownership. However, it’s important to conduct a thorough cost-benefit analysis and consult with one of our experienced mortgage advisors to determine if this option aligns with your overall financial goals.


Whether you’re a first-time homebuyer or an experienced homeowner, understanding the nuances of mortgage buydowns can empower you to make informed financial decisions. By taking the time to evaluate all available mortgage options, you can find the best path to homeownership while ensuring financial stability.

If you’re considering a buydown, reach out to explore your options and determine the best approach for your
situation.

BUYDOWN ADVANTAGE CALCULATOR

See how a temporary rate buydown might reduce your monthly mortgage payment with our Temporary Buydown
calculator.
Year Rate Principal & Interest Buydown Total Annual Buydown
1
2
3-30
Total Buydown Funds:
Year Rate Principal & Interest Buydown Total Annual Buydown
1
2
3-30
Total Buydown Funds:
Year Rate Principal & Interest Buydown Total Annual Buydown
1
2
3-30
Total Buydown Funds:
Smart phone

Let's Go Mobile

Download

Download our app for even more features like secure mobile document scanning and payment calculation.

  • Access to calculators
  • Securely upload docs
  • Message us instantly
  • Get updates as you go

What You Need To Know