Mortgage 2-1 Buydown 2027 Calculator
Calculate 2-1 mortgage buydown cost and savings for 2027. Year 1 = note rate -2%, year 2 = note rate -1%, year 3+ = note rate. Free, private, accurate seller-paid math.
| Year | Rate | Monthly P&I | Savings vs note rate |
|---|
What is a 2-1 mortgage buydown?
A 2-1 buydown is a temporary interest rate reduction on a new mortgage where the borrower pays a reduced rate for the first 2 years before reverting to the full note rate. Specifically: year 1 rate = note rate − 2%, year 2 rate = note rate − 1%, year 3+ = full note rate. The "buydown" is funded by depositing a lump sum in an escrow account at closing — typically paid by the seller (as a closing cost concession), homebuilder (as an incentive), or rarely the lender or buyer.
2-1 buydowns surged in popularity in 2023-2027 as rates rose. Sellers and builders use them to keep homes moving without dropping list price, and buyers get lower payments while they wait for rates to drop enough to refinance into a permanent lower rate.
How the math works (and who pays)
The escrow deposit equals the TOTAL difference between the discounted payments and the full note-rate payments over the 2-year buydown period. Example: $385,000 loan at 7.00% note rate (P&I = $2,562/mo):
- Year 1 at 5.00%: P&I = $2,066/mo. Subsidy = $496/mo × 12 = $5,952
- Year 2 at 6.00%: P&I = $2,308/mo. Subsidy = $254/mo × 12 = $3,048
- Total buydown cost = $9,000 paid into escrow at closing
The seller (or whoever funds) writes a check for $9,000 at closing. The lender holds it in escrow and subsidizes your payment monthly. After 24 months, the subsidy ends and you pay the full $2,562 from year 3 onward.
2-1 vs 3-2-1 vs permanent buydown — which is best?
The choice depends on how long you expect rates to stay high:
- 2-1 buydown ($9k typical): Best for buyers expecting rates to drop within 18-24 months. Lower upfront cost than 3-2-1. If you refinance before year 3, unused funds usually go to principal.
- 3-2-1 buydown ($15-20k typical): Best for buyers needing 3 years of relief. Higher upfront cost but smoother step-up.
- Permanent buydown (discount points): Best for buyers planning to stay 7+ years. Each point (1% of loan) typically reduces rate by 0.25%, paid upfront. Permanent vs temporary cost-benefit depends on time horizon.
Tax treatment and refinance considerations
The buydown subsidy is NOT taxable income to the buyer. The funds are treated as prepaid interest and are deductible by whoever paid them (seller deducts as a selling expense; buyer typically cannot deduct since they didn't pay). The reduced effective interest on the mortgage IS still deductible as mortgage interest (the actual amount paid each month).
If you refinance during the 2-year buydown period, the unused escrow funds are typically applied to your loan's principal balance — making the buydown effectively a payment-spread incentive. Some lenders refund the unused amount to whoever funded the buydown (seller). Always confirm the refund policy before closing.
Source: CFPB Bureau Bulletin 2023-01 on Mortgage Buydowns, Fannie Mae Selling Guide B2-1.4-04 (Temporary Buydowns), IRS Publication 936 (Home Mortgage Interest Deduction).