What Is a Temporary or Promotional Rate Buydown Program, and How Does It Work?
A temporary rate buydown (sometimes marketed as a "1-0" or "2-1" buydown, or nicknamed "save now, save later") lowers your effective mortgage interest rate for a short, set period at the start of the loan, then the rate reverts permanently to the loan's full note rate. Common versions cut the rate by 1 percentage point for year one only, or by 2 points in year one stepping down to 1 point in year two. The underlying note rate itself never changes, and the reduction can be paid for by the lender, seller, or builder as a sales incentive, or by the borrower as an added cost.
Last updated July 22, 2026How Does a 1-0 or 2-1 Buydown Work?
The name tells you the schedule. A "1-0" buydown reduces your effective rate by 1 percentage point during year one, then jumps to the full note rate starting year two. A "2-1" buydown reduces the effective rate by 2 percentage points in year one, then 1 percentage point in year two, then reverts to the full note rate for the rest of the loan term. The mortgage note itself is written at the full permanent rate the whole time. The buydown plan does not, and cannot, change the terms of that note. A separate buydown fund simply covers the difference between the reduced payment and the full-rate payment during the temporary period.
Who Pays for a Temporary Buydown?
Temporary buydowns can be funded two different ways, and this is the part that determines whether it actually saves you money.
It depends on your situation:
- Lender-, seller-, or builder-funded buydown. The funds come from someone else as a promotional or sales incentive. In this case the temporary rate reduction is genuinely free to you, the borrower.
- Borrower-funded buydown. You (or your loan proceeds) cover the buydown fund yourself. This adds a cost to the transaction in exchange for the lower early payments, so it is worth comparing that upfront cost against how much you would actually save during the temporary period before deciding it makes sense.
Is a Temporary Buydown the Same as an Adjustable-Rate Mortgage?
Not exactly, though the terminology can be confusing. Temporary buydowns are most commonly paired with fixed-rate loans. On VA-guaranteed loans, for example, a temporary buydown is only permitted with a fixed-rate mortgage, and in that fixed-rate context your effective rate can never exceed the loan's disclosed permanent note rate during the buydown period. However, a temporary buydown is not exclusively a fixed-rate feature. Fannie Mae and Freddie Mac guidelines also allow temporary buydowns on certain adjustable-rate mortgage (ARM) plans, subject to program-specific restrictions, so it is worth confirming with your lender exactly how the buydown interacts with your specific loan type.
| 1-0 buydown | 1 point below note rate |
|---|---|
| 2-1 buydown | 2 points below note rate |
| Who can fund it | Cost to borrower |
| Lender, seller, or builder | Typically none, offered as an incentive |
| Borrower | Added cost, in exchange for lower early payments |
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
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.