Temporary vs Permanent: How They Actually Differ

Both buydowns lower your payment, but they’re built for different situations.

Temporary buydowns (2-1, 3-2-1) reduce your interest rate for the first 1-3 years, then snap back to the full note rate for the rest of the loan. The cost is paid up front into an escrow account and applied as a monthly subsidy. Almost always paid by the seller, builder, or lender as a concession – rarely a smart move with your own money. They’re popular when sellers want to move a property without dropping the list price.

Permanent buydowns (discount points) permanently lower your interest rate for the entire loan. You pay 1% of the loan amount per point, and each point typically buys down the rate by about 0.25% – though that ratio varies by lender, loan type, and market. Points pay off only if you keep the loan past break-even. If you refi or sell before then, you lose money.

When a Temporary Buydown Actually Helps

• Seller is paying the concession. A 2-1 buydown can run 2-3% of loan amount. If a seller is offering it instead of a price cut, you get free monthly cash-flow relief in years 1-2 with no out-of-pocket cost. That’s a yes.
• You expect income to grow. Newer professional, residency-to-attending, or income ramping up with the business – lower payments early, full payments once you can absorb them.
• You expect to refi within 1-2 years. If rates drop and you refinance during the buydown period, any unused subsidy is typically credited toward your refinance closing costs. You don’t lose what wasn’t used.
• Builder incentive on a new construction. Many Florida builders are offering 2-1 buydowns as a sweetener instead of dropping list prices. Worth taking if it’s already on the table.

When Discount Points Pay Off

• You’re keeping the loan a long time. Points pay off if you stay past break-even. On a 30-year loan you actually keep for 15+ years, even small rate cuts add up to real money.
• You have cash to spare without draining reserves. Points come out of cash to close. Don’t pay points if it leaves you under 2-3 months of reserves after closing.
• Rates are unlikely to drop meaningfully. If you’re convinced rates will fall and you’ll refi within a few years, paying points is paying for a benefit you won’t collect.
• The lender is offering a strong points-to-rate ratio. Standard is roughly 1 point for 0.25% rate cut. Some lenders offer better; some worse. Always compare the no-point rate to the bought-down rate before deciding.

What This Calculator Doesn’t Cover

• Lender-paid temporary buydowns vs higher rate. Some lenders offer to fund the buydown themselves in exchange for a slightly higher note rate. Worth a side-by-side – call us and we’ll run it.
• Points on government loans. FHA, VA, and USDA loans treat points slightly differently for qualification and cash-to-close. The math here is the same; the structure isn’t.
• Tax deductibility. Discount points on a primary residence purchase are generally deductible the year paid. Refinance points must be amortized. Consult a tax pro – that’s not me.
• Negotiation leverage. A seller offering a 3% concession may be more flexible on price than the listing suggests. Sometimes the buydown is the wrong ask.

Rate Buydown FAQs

Get the Real Buydown Numbers

Lender concessions, seller-paid buydowns, points-to-rate ratios – they all change daily. Send me your scenario and I’ll run real numbers from real lenders, not a calculator estimate