Should You Buy Down Your Mortgage Rate? 2 Ways Compared

A seller concession is a fixed budget you can point at the mortgage — and the smart play is to optimize it for monthly cash flow, not to treat it as a dollar amount to haggle over. Put the same $9,000 toward a temporary buydown and it slashes your payment for two years; put it toward a permanent buydown and your rate drops for life. The difference is the break-even: the permanent buydown only wins if you hold the loan past roughly the four-year mark, and under that, the temporary option plus its leftover closing-cost credit is the better deal.

When a seller agrees to contribute toward your closing costs, that money can fund one of two very different rate buydowns. A temporary buydown (the most common is a 2-1) sets cash aside to lower your payment for the first one or two years without ever touching your actual mortgage rate. A permanent buydown pays discount points up front to reduce your note rate for the entire life of the loan. The same seller dollars produce dramatically different monthly savings, and neither is automatically the better deal.

This guide walks the full comparison with a real worked example, so you can see exactly where each option wins and when it starts to lose. All figures are principal-and-interest only, based on pricing available at the time of writing — your actual rate and costs will differ, and mortgage pricing changes constantly.

How Do the Two Buydowns Stack Up?

The Worked Example: A $285,000 Loan With a $9,000 Seller Credit

To make the comparison concrete, take a $300,000 purchase with 5% down, which leaves a $285,000 loan amount. The seller agrees to a 3% concession, giving you $9,000 to work with. At the time this example was built, the current par rate — the rate you'd get without paying any discount points — was 7.875%. Mortgage rates and pricing change constantly, so these numbers exist to illustrate the trade-off, not to predict your own quote.

The seller's $9,000 is a fixed budget. The question is how that single pile of money changes your payment, and there are two very different answers.

What Is a Temporary 2-1 Buydown?

The most common version is a 2-1 buydown. On a loan with a 7.875% note rate, your payment in year one is calculated as though the rate were 5.875% (two points lower). In year two, it's calculated as though the rate were 6.875% (one point lower). In year three, the subsidy ends and you pay the full amount based on your real 7.875% rate. The mortgage rate was always 7.875% — the buydown only smooths your first two years of payments.

What Is a Permanent Buydown?

The trade-off is that a permanent buydown may not lower your payment as much during those first couple of years as a temporary buydown can. You're trading early cash relief for a lower rate that lasts — and the cost comes out of the same seller concession pool.

The Math: What $9,000 Actually Buys

Back in the worked example, buying the rate down permanently from 7.875% to 7% costs $8,183. That uses almost the entire seller concession, leaving about $717 to apply toward eligible closing costs.

The 2-1 temporary buydown on that same loan costs $6,897.24, leaving $2,102.76 of the seller credit still available. During the first year, the temporary buydown saves roughly $380.57 per month compared with making the full 7.875% payment; in year two it saves $194.20 per month.

But that comparison against 7.875% isn't the useful one. The real question is how the temporary option stacks up against the permanent 7% path. During year one, the temporary buydown payment runs about $210 lower each month than the permanent 7% payment. In year two it still saves roughly $24 a month. For the first two years, the temporary buydown wins on monthly payment — and it leaves $1,386 more of the seller credit available to help with other closing costs.

The Four-Year Break-Even: When the Permanent Buydown Catches Up

In year three the temporary buydown ends, and the borrower starts making the full payment based on 7.875%. The borrower who permanently bought the rate down is still at 7%. At that point the permanent buydown saves about $170 per month compared with the expired temporary option.

Looking only at monthly payments, it would take about 16 and a half months after that point for the permanent buydown to recover the savings the temporary option created in its first two years. But the full picture includes the $1,386 more in seller credit the temporary route left available for closing costs. Add that upfront benefit, and it takes roughly another 25 months after the temporary buydown expires for the permanent option to catch up. In this example, you're looking at about four years from closing before the permanent buydown has created more total financial benefit — assuming everything else stays the same.

The Refinance Gamble

You'll hear people say to take the temporary buydown because rates are coming down and you can refinance. Maybe. But nobody knows that. Rates could fall, stay flat, or climb higher. Even if rates do drop, there's no guarantee you'll qualify to refinance — your income, your credit, and your property value could all change, and lending guidelines themselves can shift. Refinancing also carries its own closing costs. Choosing a temporary buydown solely on the promise that you'll refinance before it expires is a gamble, and sellers often use these buydowns precisely because a buyer focused only on year-one relief can miss the payment jump that follows.

If rates do fall and you refinance during the two-year buydown period, you don't necessarily lose the unused buydown money. Depending on the loan program and your buydown agreement, the remaining funds may be applied toward the mortgage payoff or handled another allowable way. That's why you want to read the actual buydown agreement and understand how those unused funds will be treated before you commit.

The Purchase-Price Alternative: $9,000 of Price Cut vs. $9,000 of Buydown

Instead of giving you $9,000 toward closing costs or a rate buydown, a seller might simply reduce the purchase price by $9,000. Run the same numbers and the effect on your monthly payment is small. Instead of buying the home for $300,000, you buy it for $291,000. With the same 5% down and the same 7.875% rate, your principal-and-interest payment drops by only $62 a month.

Should You Buy Down Your Rate?

Choose a temporary buydown if you value the lowest possible payment during the first couple of years — perhaps because you just bought the house and are juggling furniture, repairs, moving costs, and other expenses — or if you genuinely expect to move or refinance within a few years.

Neither is automatically better. When a seller is willing to negotiate, the stronger question is not what the list price should be, but how to put the seller's concession to the best use for your specific situation. Depending on your circumstances, a temporary buydown, a permanent buydown, a closing-cost credit, or a price reduction could each make sense.

All examples here are for educational purposes only, based on hypothetical or market-specific pricing at the time of writing. Rates, discount points, payments, seller concessions, and program guidelines can change. Payment figures are principal-and-interest only and exclude property taxes, homeowners insurance, mortgage insurance, HOA dues, and other costs. Temporary buydowns and seller contributions are subject to the loan program and lender requirements. Future rates are not guaranteed, and refinancing requires a new application, qualification, and approval with additional closing costs.