What Is a Temporary or Promotional Rate Buydown Program, and How Does It Work?
A temporary buydown lowers your payment for the first year or two of the loan, then the payment goes to the full rate for good. The common versions are a 1-0, which cuts the effective rate by 1 point for year one, and a 2-1, which cuts it by 2 points in year one and 1 point in year two. The loan's actual note rate never changes, and a lender, seller, builder or you can pay for it.
Last updated September 29, 2026How does a 1-0 or 2-1 buydown work?
The name is the schedule. A 1-0 lowers the effective rate by 1 point in year one, then you pay the full note rate from year two on. A 2-1 lowers it by 2 points in year one and 1 point in year two, then goes to the full rate. The mortgage note is written at the full rate the whole time. A separate buydown fund covers the gap between your lower payment and the full payment during those early years.
One thing to know before you count on the lower payment: on loans that follow Fannie Mae's guidelines, you generally have to qualify at the full note rate, not the bought-down rate.
Who pays for a temporary buydown?
It depends on your situation:
- A lender, seller or builder pays: the lower early payments cost you nothing directly. A seller- or builder-paid buydown generally counts toward the loan's limit on seller concessions.
- You pay: it's an added cost at closing in exchange for lower early payments, so compare that cost with what you'd actually save during those years.
Is a temporary buydown the same as an adjustable-rate mortgage?
No. Buydowns are most common on fixed-rate loans; the rate schedule is set in advance, and your payment never goes above the full note rate. On VA loans, a temporary buydown is allowed only with a fixed-rate mortgage. Fannie Mae and Freddie Mac also allow buydowns on some adjustable-rate loans, with their own limits, so ask how it works with the loan you're considering.
| 1-0 buydown | 1 point below the note rate in year one, then the full rate |
|---|---|
| 2-1 buydown | 2 points below in year one, 1 point below in year two, then the full rate |
| The note rate | Never changes |
| Qualifying (Fannie Mae) | Generally at the full note rate |
| Paid by a lender, seller or builder | No direct cost to you; seller-paid buydowns count toward concession limits |
| Paid by you | An added cost at closing |
Related questions
Sources
- https://selling-guide.fanniemae.com/sel/b2-1.4-04/temporary-interest-rate-buydowns
- https://www.benefits.va.gov/homeloans/temporary-buydown.asp
- https://guide.freddiemac.com/app/servicing/section/4204.3
- https://guide.freddiemac.com/app/guide/section/4601.1
- https://www.consumerfinancemonitor.com/2022/12/22/cfpb-addresses-mortgage-financing-option-in-a-higher-rate-environment
Sourced from licensed loan officers and brokers in the FreeRateUpdate network.
Educational information only, not individualized financial or legal advice. Program details and rates change; verify current terms with a licensed loan officer before making a decision.