2-1 Rate Buydown Calculator

A 2-1 temporary rate buydown reduces the effective interest rate in years 1 and 2 of a mortgage, with the buyer paying the full note rate from year 3. The cost is typically funded by a seller concession at closing and held in an escrow account. Source: Fannie Mae Selling Guide B2-1.5-04.

How a 2-1 Buydown Works

At closing, the seller funds an escrow account equal to the dollar savings in years 1 and 2. Each month, the borrower pays the discounted payment from their own funds, and the lender drafts the subsidy amount from escrow. The borrower's payment increases each year: year 1 at 2 points below note, year 2 at 1 point below, year 3 onwards at full note rate. The borrower must qualify for the FULL note rate during underwriting — the buydown is a payment subsidy, not a rate cut for qualification purposes.

Why Buyers Like It and Risks

The 2-1 lowers monthly outflow during the first 24 months — useful for buyers expecting raises, transitioning between jobs, or expecting rates to drop so they can refinance into a permanent lower rate before year 3. Risk: if income does not rise and rates do not fall, the borrower faces a payment shock in year 3 they may not be able to absorb. The buydown is essentially betting on personal financial improvement or market rate drops.

2-1 vs Permanent Buydown

A permanent buydown via discount points lowers the rate for the entire loan life, but costs more upfront — roughly 1% of loan per 0.25% rate reduction. A 2-1 saves the same dollar amount but only for 2 years, then full rate kicks back. For seller concessions limited by program (3-6% of price), 2-1 stretches the dollars further than discount points for buyers who plan to refinance or sell before year 5.

Last updated May 2026. Sources: Fannie Mae Selling Guide B2-1.5-04, CFPB Buydown Guide.