Don’t Get Burned by the Mortgage Buydown: What Every Homebuyer Should Know

With mortgage rates sticking well above COVID-19 pandemic levels, it’s no wonder homebuyers and sellers are using creative ways to lower upfront costs and get more people into homes. Enter the mortgage buydown, a tool that cuts your interest rate either temporarily or permanently. If that sounds too good to be true, it’s because it sometimes is. 

Like all financing options and tactics, a mortgage buydown has its place in your homebuying toolbox. That said, the enticement of lowering your rate, even for a year or two, can sometimes lead people to overlook the drawbacks and ramifications of using it. 

The mortgage buydown has become markedly more popular: According to new-construction insights from Realtor.com®, the percentage of listings with a mortgage rate buydown shot up from about 1% in 2022 to nearly 6% by late 2023. By the end of 2024, that number was still above 4%. 

As of 2025, even some homebuilders are discouraging their peers from offering the mortgage buydown so often. Why the backlash on this tactic, and what should homebuyers know about using a mortgage buydown today?

What is a mortgage buydown?

A mortgage buydown is a financing technique that temporarily or permanently reduces your mortgage interest rate, which in turn lowers the monthly payments on your loan. 

Here’s how it works: Someone—it could be the homebuyer or seller, a homebuilder, or a lender—pays money upfront to “buy down” the mortgage rate. 

The buydown can be temporary, structured as a 2-1 buydown (the interest rate is reduced by 2% in Year 1, 1% in Year 2, and returns to the normal rate from then on) or a 1-0 buydown (a 1% reduction only in the first year). It can also be permanent, reducing the interest rate for the life of the loan.

Let’s say you need a $500,000 home loan, which you get at a 7% interest rate. Your original monthly payment would be approximately $3,327. With a 2-1 buydown, your monthly payment in the first year would be $2,684, at a 5% rate. In the second year, your monthly payment would increase to about $2,998, at a 6% rate. From Year 3 onward, you'd have your original payment and rate. Over the first two years, you'd save approximately $11,664 in total payments.

What’s the catch?

Saving thousands of dollars in the first few years of owning a home sounds great. But what is the trade-off that buyers make when they agree to a buydown? 

The catch with a mortgage buydown isn't universal—it depends on who's paying and what type you choose. But there's a potential downside in every scenario.

“In the short term, buydowns can help soften the blow of higher rates and make the entrance into homeownership more comfortable,” explains Jacob Naig, a real estate investor and agent in Des Moines, IA. “But long term, buyers do need to think about whether they will still be in the home when the rate resets. If you will refinance or move within that window, the buydown might meet its goal. If not, the cost calculus often works against you.”

The buydown is especially common when working with new-home builders, because builders prefer offering payment relief without officially cutting home prices—maintaining profit margins and property values in their developments. Builders often have the financial flexibility to absorb buydown costs, in an effort to drive sales and move inventory when interest rates are high.

Even if you pay for the buydown, you may be putting yourself in a bind. A buydown means spending money upfront that you could potentially invest elsewhere at a better return. With a temporary buydown, your rates will reset—and you may not be prepared to adjust to your new rate. When you pay for a permanent buydown, you're betting against yourself. If rates drop significantly, you may regret not keeping that money for a future refinance. You're locking in today's rate environment, when tomorrow's rate might be better.

“On paper, it would appear that lowering your monthly payment could be a win-win,” says Naig. “But the trade-off is frequently hidden. Either the seller or the builder is jacking up the listing price to cover the buydown, or the buyer is paying a premium upfront for just temporary relief, instead of lasting savings.”

Also, if you end up needing to sell your home sooner than expected, you may not be able to do so at the inflated price you bought it for. 

How to use the mortgage buydown effectively

The mortgage buydown often works best if you have an exit strategy. If you buy the rate down yourself, and plan to move within a few years, you get the benefit of lower payments without ever having to deal with the higher, “normal” rate. But if you're planning to stay put and keep the original loan, you'll eventually pay that full rate anyway, making the upfront cost harder to justify.

Not sure what your long-term plan is? Focus on three key strategies when deciding whether to use a buydown:

1. Calculate the break-even point. Take the upfront cost and divide it by your monthly savings to see how long it takes to recoup the expense. "In today's market, we typically advise keeping that break-even within one to three years, since most borrowers refinance or sell before the full 30-year term," says Benjamin Schieken, a mortgage professional and founder of Fincast.
2. Shop around aggressively. Different lenders offer vastly different buydown costs and terms, so get multiple quotes and review your loan estimates carefully to compare the real costs and credits. This ensures that what you agreed on with each lender actually matches their official paperwork. Schieken notes that competitive shopping can unlock significant savings—he's seen borrowers save thousands just by getting multiple quotes on the same loan scenario.
3. Negotiate for alternatives. If a seller or builder offers a buydown, consider asking for a lower sale price instead. "A price reduction can have ripple effects—lower loan amount, lower down payment, lower property taxes, and lower insurance costs, all of which benefit the buyer long term," Schieken explains.

Of course, there are other ways to make homebuying more affordable. Be sure to explore specialized home loans, such as those for first-time homebuyers or veterans, or federal, state, and local down payment assistance programs. 

The mortgage buydown isn't inherently good or bad—it's a tool that can work in specific situations. In a high-rate environment, the temptation to grab any payment relief is understandable. Just make sure you're not trading short-term comfort for a long-term financial regret.