Buydown Calculator
“4.99%” is not
what it looks like.
Builders love to advertise a rate far below the market. Usually that is a temporary 2-1 or 3-2-1 buydown that steps up to the real rate in a couple of years. See exactly what it does, what it costs, and how it stacks up against a price cut.
Prefer to talk now? Call or text 254-718-2567
Get the real offer compared
Send Luke the builder's promotion and he will show you the note rate, the year-three payment, and whether a price cut would beat it, on your side of the table.
Your scenario
Estimate only, principal and interest. Actual buydown structures, rates, and costs vary by lender and change often; confirm the current written offer.
What the buydown actually does
| Year 1 (4.50%) | $2,052/mo | saves $508/mo |
| Year 2 (5.50%) | $2,300/mo | saves $260/mo |
| Year 3+ (6.50%) | $2,560/mo | the real payment |
The catch
That promoted 4.50% first-year rate is temporary. In year 3 the payment jumps to $2,560/mo at the real 6.50% note rate. The builder funds the buydown up front, about $9,218 total, into an escrow that runs out.
Same money as a price cut instead
If that $9,218 came off the price instead, your payment would be $2,502/mo, about $58/mo lower than the note payment, every month for the life of the loan, not just the first 2 years. A buydown wins if you will refinance or sell soon; a price cut wins if you will stay.
How to read a buydown offer
A temporary buydown is a real, useful tool, but it is a short-term discount dressed up as a low rate. The builder funds an escrow that subsidizes your payment for the first two years (2-1) or three years (3-2-1); after that, you pay the full note rate. The advertised number is the subsidized first-year rate, not your long-term payment.
Two honest questions cut through it. First, what is the note rate, the payment you will make from year three on? Second, if you took the dollars funding the buydown as a price reduction instead, what would the permanent payment be? If you plan to move or refinance within a few years, the buydown often wins. If you plan to stay, the price cut usually does. And either way, compare the builder’s lender against an outside quote, because the best incentives are often tied to their financing.
Good to know
Buydowns, answered
- What is a 2-1 buydown?
- A 2-1 buydown temporarily lowers your mortgage rate by 2 percent in year one and 1 percent in year two, then it returns to the full note rate in year three for the rest of the loan. The builder or seller funds the difference up front into an escrow account that pays down your monthly payment during those first two years. It is a temporary discount, not a lower loan.
- Is a buydown better than a price reduction?
- It depends on how long you will keep the loan. A temporary buydown gives a big payment cut for the first two or three years, then the payment jumps to the note rate, so it wins if you plan to refinance or sell soon. The same money taken off the price is a smaller but permanent monthly saving for the life of the loan, so it wins if you will stay. The calculator shows both.
- Why does a promoted 4.99% rate not last?
- When a builder advertises a rate well below the market, it is often a temporary buydown, so that number applies only to the first year or two before the payment steps up to the real note rate. The advertised rate is real for a while, but it is not your long-term rate. Always ask what the note rate is and what the payment becomes after the buydown ends.
- Do I have to use the builder's lender for a buydown?
- Usually the richest buydowns are tied to the builder's in-house or preferred lender, which can be the better deal or can hide a higher rate or fees. Get a competing quote from an outside lender and compare the true cost, net of the buydown, before you commit. A buyer's agent runs that comparison with you.
Related
Keep exploring
- 01New Home Cost CalculatorSee the real monthly cost of a new Austin home, MUD and PID taxes included.
- 02Do You Need a Buyer's Agent?Why the builder's on-site agent is not on your side, and why the builder pays for your agent.
- 03New Homes by BudgetNew construction under $300K, $400K, and $500K, with the suburbs that fit each.
- 04Search New Construction HomesLive new-build MLS listings across the Austin metro, filterable by price and build status.
Builder-paid representation
Is the buydown actually a good deal?
Tell Luke the community, the note rate, and the buydown or price cut on the table, and he will run the real comparison and negotiate the stronger one, with the builder covering his fee in most cases.
Luke Allen
Licensed Texas REALTOR, TREC #788149
Austin Marketing + Development Group