2-1 Buydown & Mortgage Points Calculator

How to use it

Choose Temporary buydown to see the year-by-year payments and the cost of a 3-2-1, 2-1 or 1-0 buydown on your loan, or Discount points to compare a quote with points against one without. Enter the loan amount and rates from your Loan Estimate. Rates start at Freddie Mac's weekly national average only so the page has a starting point.

How a temporary buydown works

A temporary buydown lowers your payment for the first one to three years. In a 2-1 buydown the payment is figured at 2 percentage points below the note rate in year 1 and 1 point below in year 2; from year 3 you pay the full note-rate payment. A 3-2-1 adds a third year, and a 1-0 covers only year 1. The note rate on the loan itself doesn't change.

Someone pays for the difference up front. The usual way to size the fund is to add up the monthly payment differences for each discounted year, and that's what the calculator shows. A seller or builder can fund it as a concession, or you can pay it yourself.

Example: $225,000 at a 7.40% note rate for 30 years. The full payment is $1,557.85. A 2-1 buydown makes year 1 $1,263.44 and year 2 $1,407.39, for a fund of $5,338.52. A 3-2-1 starts at $1,126.71 and costs $10,512.23.

How discount points work

A discount point is a fee of 1% of the loan amount that you pay at closing for a lower rate for the whole loan. Lenders price points differently, so use the rate they quote for each option. The break-even is the number of months of lower payments it takes to earn back the fee.

Example: if one point ($2,250 on $225,000) drops the rate from 7.40% to 7.15%, the payment falls by $38.19 a month and the break-even is 59 months. Keep the loan 10 years and you come out $2,333 ahead; sell or refinance at 5 years and it's $41.

Buydown or points?

A temporary buydown helps only in the first years and then disappears; points lower the payment for as long as you keep the loan. If you expect to refinance when rates fall, a seller-paid buydown costs you nothing, while points you pay yourself are lost when you refinance. If you plan to keep the loan for many years, points with a short break-even can be worth more. In both cases, make sure you can afford the full note-rate payment, since that's what you pay once the buydown ends.

To see the full payment with Oklahoma property tax, insurance and mortgage insurance, use the mortgage calculator.

The formulas

Payment(rate) = P × r / (1 − (1 + r)^−n),  r = rate ÷ 12
Buydown fund = Σ over buydown years of 12 × [Payment(note) − Payment(note − k)]
Points break-even (months) = ⌈ points cost ÷ (Payment without − Payment with) ⌉