Temporary Mortgage Buydown vs Permanent Points Analyzer

Key Formulas Used

Mortgage math is built on the present value of an annuity. The monthly payment M for a principal balance P, monthly interest rate r, and term in months n is calculated as:

The effective annual percentage rate during a temporary buydown year simply subtracts the scheduled reduction from the market rate. For example, a 2-1 buydown with a 6.5% market rate yields 4.5% in year one and 5.5% in year two. Permanent points reduce the market rate by multiplying the points purchased by the rate reduction per point. If two points buy down the rate by 0.25% each, the permanent rate becomes 6.0%.

Worked Example

Consider a $400,000 loan over 30 years at a 6.75% market rate. A builder offers a 2-1 buydown costing $8,000, while the borrower contemplates paying 1.5 discount points (1.5% of the loan, or $6,000) to secure a permanent rate reduction of 0.375 percentage points. The temporary buydown drops the first-year rate to 4.75%, the second-year rate to 5.75%, and then reverts to 6.75%. Payments start at $2,086, rise to $2,334 in year two, and ultimately reset to $2,594. Over a three-year horizon, the borrower saves about $11,868 in payments but must account for the $8,000 upfront cost, netting $3,868 in benefit.

Alternatively, purchasing 1.5 points lowers the rate to 6.375% permanently, producing a steady $2,499 payment. The breakeven period is roughly 30 months: after that, the permanent buydown continues delivering savings. If the borrower expects to refinance within two years, the temporary buydown may be more attractive, especially if the seller funds it. If they plan to stay in the home for at least three years, the permanent buydown accumulates greater net savings, and the risk of payment shock is eliminated.

Strategy Interpretation

Once you review your personalized results, focus on three decision points. First, examine the net present savings over your analysis horizon; if the temporary buydown’s upfront subsidy doesn’t recoup its cost before the reset, you must be confident about refinancing. Second, study the payment shock chart. Some borrowers stretch to qualify using the bought-down payment, only to face stress a year later. Third, compare the permanent equity trade-off. Discount points consume cash that could have been part of your down payment or emergency fund. The expected rate movement input helps you stress-test the risk of floating instead of paying for either incentive.

Because lenders often quote buydowns as “seller-paid,” you can also reverse-engineer what concession size translates to parity. If a seller offers $10,000 in credits, this calculator can show whether points or temporary buydowns deliver more front-end relief. Builders who prefer temporary buydowns often value the marketing story that “payments start under $2,000,” while buyers may value the steady-state security of a lower permanent rate. Quantifying both sides makes negotiations easier.

Comparison Table

The table below demonstrates how savings stack up in a common scenario.

Assumptions and Limitations

Temporary buydown contracts vary by lender; some apply the buydown subsidy monthly while others place it in escrow. This calculator assumes the cost is paid upfront and evenly offsets the monthly payment. It also assumes that permanent points change only the interest rate, not the APR’s compounding frequency, and that lender credits scale with the loan amount. Tax deductions, mortgage insurance impacts, and rate lock caps are excluded. Always verify rate adjustments with your loan estimate and remember that qualifying ratios typically use the final reset payment even when you have a buydown. Use these results as a negotiation aid, then confirm with your lender’s official amortization schedules before making a binding decision.

Scenario Playbook for Different Stakeholders

Builders, listing agents, and buyers all approach buydowns differently. Builders commonly roll the subsidy into their marketing budgets because it lets them advertise headline payments that feel closer to pre-rate-spike affordability levels. They often prefer 3-2-1 structures on spec homes that may take months to sell, giving buyers a runway to refinance when the product pipeline normalizes. Listing agents, meanwhile, might highlight a 2-1 buydown in MLS remarks as an alternative to multiple price cuts, especially in markets where appraisals are coming in light. Buyers evaluating a permanent point buy have to think about their break-even horizon and whether the cash could earn a better return in an offset account or emergency fund. The playbook this calculator enables involves modeling each perspective, then using the export to craft talking points tailored to whoever is funding the concession.

Consider the seller who wants to preserve comps. They can plug in a hypothetical $15,000 credit and see whether that funds enough points to drop the rate by half a percent. If the buyer plans to stay seven years, the permanent buydown usually wins, so the seller can frame the concession as a partnership in long-term affordability. In contrast, a relocation buyer expecting to move again within two years might benefit far more from a temporary buydown, especially if the employer is willing to cover the cost as part of a relocation package. The calculator’s ability to toggle between time horizons and net savings lets you show, in concrete dollar terms, why a single concession strategy does not fit every situation.

Lenders also benefit. Wholesale account executives frequently host lunch-and-learns with agents to explain buydown mechanics, but the math can feel abstract. Bringing this calculator to the meeting allows participants to enter actual listing prices from their pipelines, demonstrate what a 1-0 buydown accomplishes relative to a 1% lender credit, and export the CSV for compliance-approved handouts. Because the app runs entirely in the browser, no sensitive borrower data leaves the device, making it safe for training sessions. The more conversations you have grounded in precise payment trajectories, the easier it becomes to justify strategic concessions instead of blanket price cuts.

Data Gathering Checklist

Accurate comparisons hinge on accurate inputs. Before using the calculator, gather the loan estimate or closing disclosure for the existing scenario, including rate lock terms, discount point pricing, and lender credits already on the table. Confirm whether the buydown is funded by the seller, builder, or lender, because that determines how cash flows show up on the settlement statement. You should also request the investor overlays for buydowns and points; some programs cap total credits at 6% of the purchase price or limit buydowns to primary residences. Having these documents nearby reduces guesswork and prevents unrealistic projections.

Next, map out your refinance expectations. If you believe rates will fall within two years, the temporary buydown might function as a bridge strategy, especially for borrowers who expect major income growth or who are exiting an adjustable-rate mortgage reset. Conversely, if the property is a forever home and cash reserves are strong, stacking permanent points with seller credits could lower lifetime costs dramatically. The calculator’s expected rate move field lets you input your macro view, but you can also experiment by changing the analysis horizon from one year to ten years to mimic different hold periods.

Finally, document qualitative factors such as tolerance for payment volatility, likelihood of job relocation, and the presence of mortgage insurance. PMI premiums often fall off once equity surpasses 20%, so a permanent rate buydown that accelerates amortization may shorten PMI duration. Temporary buydowns typically do not affect PMI schedules. By storing these notes alongside the CSV export, you create a decision log that auditors, teammates, or future-you can revisit when reviewing why a particular concession structure was chosen.

Advanced Sensitivity Analysis

The calculator encourages experimentation. Try running three or four scenarios with varying buydown costs and analysis periods, then plot the cumulative savings in a spreadsheet to create a breakeven curve. You can also change the rate reduction per point to match real-time pricing; in high-volatility markets, one point might only buy down the rate by 0.125%, while in calmer markets the same point can be worth 0.25% or more. Adjusting this field gives you insight into whether points are richly or poorly priced relative to temporary buydowns. If points are inefficient, a seller credit might be better allocated to closing costs or permanent upgrades that support appraisal value.

For portfolio investors, the tool doubles as a strategic asset-allocation aid. Landlords can assess whether to use free cash to pay points on an existing rental mortgage or to fund buydowns on a new acquisition intended for quick refinancing. Because the calculator outputs net savings over customizable horizons, you can align the timeline with lease expirations, expected rent growth, or 1031 exchange deadlines. Commercial borrowers dealing with debt-service-coverage-ratio tests can also use the payment projections to verify that a temporary buydown keeps DSCR above lender thresholds until stabilized income is documented.

Lastly, remember to test worst-case outcomes. Input zero rate improvement for points to simulate a scenario where pricing worsens before you lock, then verify whether the buydown still pencils. Likewise, test a refinance that never materializes by setting the analysis horizon to the full loan term. If the temporary buydown still produces a modest positive net even without refinancing, you have a margin of safety. If it swings negative, make sure the party funding the buydown understands the downside. Sensitivity analysis ensures the concessions you choose remain defensible under multiple economic pathways.

Scenario Playbook for Different Stakeholders

Builders, listing agents, and buyers all approach buydowns differently. Builders commonly roll the subsidy into their marketing budgets because it lets them advertise headline payments that feel closer to pre-rate-spike affordability levels. They often prefer 3-2-1 structures on spec homes that may take months to sell, giving buyers a runway to refinance when the product pipeline normalizes. Listing agents, meanwhile, might highlight a 2-1 buydown in MLS remarks as an alternative to multiple price cuts, especially in markets where appraisals are coming in light. Buyers evaluating a permanent point buy have to think about their break-even horizon and whether the cash could earn a better return in an offset account or emergency fund. The playbook this calculator enables involves modeling each perspective, then using the export to craft talking points tailored to whoever is funding the concession.

Consider the seller who wants to preserve comps. They can plug in a hypothetical $15,000 credit and see whether that funds enough points to drop the rate by half a percent. If the buyer plans to stay seven years, the permanent buydown usually wins, so the seller can frame the concession as a partnership in long-term affordability. In contrast, a relocation buyer expecting to move again within two years might benefit far more from a temporary buydown, especially if the employer is willing to cover the cost as part of a relocation package. The calculator’s ability to toggle between time horizons and net savings lets you show, in concrete dollar terms, why a single concession strategy does not fit every situation.

Lenders also benefit. Wholesale account executives frequently host lunch-and-learns with agents to explain buydown mechanics, but the math can feel abstract. Bringing this calculator to the meeting allows participants to enter actual listing prices from their pipelines, demonstrate what a 1-0 buydown accomplishes relative to a 1% lender credit, and export the CSV for compliance-approved handouts. Because the app runs entirely in the browser, no sensitive borrower data leaves the device, making it safe for training sessions. The more conversations you have grounded in precise payment trajectories, the easier it becomes to justify strategic concessions instead of blanket price cuts.

Data Gathering Checklist

Accurate comparisons hinge on accurate inputs. Before using the calculator, gather the loan estimate or closing disclosure for the existing scenario, including rate lock terms, discount point pricing, and lender credits already on the table. Confirm whether the buydown is funded by the seller, builder, or lender, because that determines how cash flows show up on the settlement statement. You should also request the investor overlays for buydowns and points; some programs cap total credits at 6% of the purchase price or limit buydowns to primary residences. Having these documents nearby reduces guesswork and prevents unrealistic projections.

Next, map out your refinance expectations. If you believe rates will fall within two years, the temporary buydown might function as a bridge strategy, especially for borrowers who expect major income growth or who are exiting an adjustable-rate mortgage reset. Conversely, if the property is a forever home and cash reserves are strong, stacking permanent points with seller credits could lower lifetime costs dramatically. The calculator’s expected rate move field lets you input your macro view, but you can also experiment by changing the analysis horizon from one year to ten years to mimic different hold periods.

Finally, document qualitative factors such as tolerance for payment volatility, likelihood of job relocation, and the presence of mortgage insurance. PMI premiums often fall off once equity surpasses 20%, so a permanent rate buydown that accelerates amortization may shorten PMI duration. Temporary buydowns typically do not affect PMI schedules. By storing these notes alongside the CSV export, you create a decision log that auditors, teammates, or future-you can revisit when reviewing why a particular concession structure was chosen.

Advanced Sensitivity Analysis

The calculator encourages experimentation. Try running three or four scenarios with varying buydown costs and analysis periods, then plot the cumulative savings in a spreadsheet to create a breakeven curve. You can also change the rate reduction per point to match real-time pricing; in high-volatility markets, one point might only buy down the rate by 0.125%, while in calmer markets the same point can be worth 0.25% or more. Adjusting this field gives you insight into whether points are richly or poorly priced relative to temporary buydowns. If points are inefficient, a seller credit might be better allocated to closing costs or permanent upgrades that support appraisal value.

For portfolio investors, the tool doubles as a strategic asset-allocation aid. Landlords can assess whether to use free cash to pay points on an existing rental mortgage or to fund buydowns on a new acquisition intended for quick refinancing. Because the calculator outputs net savings over customizable horizons, you can align the timeline with lease expirations, expected rent growth, or 1031 exchange deadlines. Commercial borrowers dealing with debt-service-coverage-ratio tests can also use the payment projections to verify that a temporary buydown keeps DSCR above lender thresholds until stabilized income is documented.

Lastly, remember to test worst-case outcomes. Input zero rate improvement for points to simulate a scenario where pricing worsens before you lock, then verify whether the buydown still pencils. Likewise, test a refinance that never materializes by setting the analysis horizon to the full loan term. If the temporary buydown still produces a modest positive net even without refinancing, you have a margin of safety. If it swings negative, make sure the party funding the buydown understands the downside. Sensitivity analysis ensures the concessions you choose remain defensible under multiple economic pathways.