3-2-1 Temporary Rate Buydown Calculator

The 3-2-1 buydown reduces your mortgage rate by 3% in year 1, 2% in year 2, and 1% in year 3 — then jumps to the full note rate from year 4. It is most common on new construction where builders use it instead of a price reduction. This calculator shows your exact payment schedule for all 4 years and the total upfront cost paid by the seller, builder, or lender.

3-2-1 vs 2-1 Buydown — Which Is Better?

3-2-1 provides a deeper subsidy (3% off in year 1 vs 2%) and an extra year of relief, but costs roughly 50% more upfront. For builders offering a 3-2-1 concession on new construction, you are typically paying for it in the home price. Compare the 3-2-1 buydown dollar value against a straight price reduction of the same amount — for long-term holders, price reduction wins because it reduces principal for the entire 30-year term, while buydown savings end at year 4.

Qualification and Lender Pricing

Lenders qualify borrowers at the FULL note rate, not the buydown rate, regardless of buydown structure. The IRS treats seller-paid buydowns as a reduction in the home's basis, not as deductible mortgage interest. Buydown funds are held in an escrow account at the lender and disbursed monthly to subsidize the rate. If you refinance, prepay, or sell before year 4, unused funds are returned per the buydown agreement — usually credited to the borrower at payoff or applied to principal.

Risk of Payment Shock at Year 4

The largest 3-2-1 risk is payment shock at year 4. A buyer at $400K loan and 7.5% note rate goes from a year-1 payment of $2,398 to a year-4 payment of $2,797 — nearly $400/month more. Stress-test your budget against the year-4 payment before accepting any buydown. If you cannot afford the post-buydown payment without major income growth, the buydown is delaying default rather than helping affordability. See our refinance savings calculator for a refi-before-shock alternative.

Last updated May 2026. Sources: CFPB.