2-1 Buydown Mortgage 2027 Calculator
A 2-1 buydown lowers your mortgage interest rate by 2% in year 1, 1% in year 2, returning to the note rate from year 3 onward. Seller pays the cost upfront into escrow. Calculate monthly payment savings and total buydown cost. Source: CFPB consumer guidance.
How a 2-1 Buydown Works
In a 2-1 buydown, the seller (or builder) deposits funds into an escrow account at closing. That escrow subsidizes 2% of the interest rate in year 1 and 1% in year 2. From year 3 onward, you pay the full note rate. The escrow runs dry exactly after 24 months. Most common in slow housing markets where sellers offer concessions to attract buyers. Source: CFPB Buydown Disclosure rules.
Cost of a 2-1 Buydown — Who Pays?
On a $400,000 loan at 6.75% note rate vs 4.75% effective year 1: monthly P&I drops from $2,595 to $2,087 — savings $508/month × 12 = $6,096 year 1. Year 2 savings about $3,200. Total cost to seller: ~$9,300 escrowed at closing. Buyer benefits: lower year-1-2 payment, time to grow income or refinance. Seller benefits: avoids price reduction, faster sale.
Refinance Considerations Before Year 3
If rates fall and you refinance before year 3, the remaining escrow balance typically goes back to the lender or buyer per the buydown agreement — check fine print. Refinancing locks in lower rate permanently but lose the 2-1 escrow subsidy. Best strategy: hold 2-1 buydown if rates stay flat; refinance if rates drop 100+ bps.
2-1 vs 3-2-1 vs 1-0 Buydowns
Variations: 3-2-1 buydown reduces rate by 3%/2%/1% in years 1-3 (costs more upfront, more time to recover). 1-0 reduces by 1% year 1 only (cheapest option). All buydowns are temporary — note rate is what governs after the buydown period. Source: CFPB Mortgage Acts and Practices Rule.
Frequently Asked Questions
How does a 2-1 buydown reduce my mortgage payment?
Year 1: payment calculated at note rate minus 2%. Year 2: minus 1%. Year 3+: full note rate. Escrow account funds the difference. Source: CFPB.
Who pays for the 2-1 buydown?
Typically the seller or builder as a closing-cost concession. Sometimes the buyer or lender pays. Escrow is deposited at closing.
What happens if I refinance during the buydown?
Unused escrow typically returns to whoever funded it (per the buydown agreement). Always check the disclosure before refinancing.
Is a 2-1 buydown the same as discount points?
No. Discount points permanently lower the rate for the loan's life — paid upfront by buyer. Buydown is temporary (1-3 years) and typically paid by seller.
Do I qualify based on note rate or buydown rate?
Lenders qualify you at the note rate (full rate), not the reduced buydown rate, to ensure you can afford payments after the buydown ends. Source: CFPB QM Rule.