2-1 Temporary Mortgage Rate Buydown 2027 Calculator

How a 2-1 Temporary Buydown Works

A 2-1 temporary buydown reduces the buyer's effective rate by 2% in year 1 and 1% in year 2, returning to the full note rate from year 3 onward. The difference between the reduced payment and the note payment is held in an escrow account, funded entirely upfront — usually by the seller as a concession or by the lender as a rate-buydown promotion. The escrow disburses to the lender monthly to make up the rate gap.

Buydown vs Permanent Points

Permanent points (discount points) buy down the rate for the full loan life — typically 1% of the loan amount cuts the rate by 0.25%. Equivalent 1.5% average rate reduction would require ~6 points = $24,000 on a $400k loan. 2-1 buydown costs much less upfront (~$10-12k for the same average savings) but expires after 2 years. Buydown wins if you plan to refinance within 2-3 years (taking advantage of expected rate cuts); permanent wins if you plan to hold the loan long-term.

Who Pays the Escrow

Seller-paid buydown is the most common — listed as a closing concession in the contract. Builder-paid buydowns are common for new construction inventory. Buyer-paid 2-1 buydown is rare because the buyer effectively prepays interest with no rate benefit beyond what permanent points would deliver. Lender-paid buydowns exist but are usually rolled into a higher note rate or higher pricing — not "free" despite marketing language.

Risk of Year 3 Payment Shock

Buyers must qualify at the FULL note rate, not the buydown rate — protecting against the year 3 payment shock by ensuring affordability at par. Failing to budget for the rate jump is the biggest risk: monthly payment can rise $300-700 in year 3, catching buyers off guard. If rates have dropped by then, refinancing is the natural exit. If rates rise instead, you're locked into the original note rate.

Sources: cfpb.gov, hud.gov, freddiemac.com, fanniemae.com. Last updated: May 2026.