The Buydown Breakdown: Why That Lower Rate Might Cost You More
Let’s talk real, because there’s a lot of noise out there. You see these ads everywhere: “Lock in a lower rate with our in-house lender!” “Get a 3.99% interest rate when you buy with us!” Sounds amazing, right? But what most buyers don’t realize is this: That “lower rate” you’re being offered—it’s not free. It’s a strategy. A marketing tool. A cost hidden in plain sight.
So What Is a Rate Buydown?
A rate buydown is when money is paid upfront to lower your mortgage interest rate. Either you, the builder, or the lender pays what’s called "points" to bring your rate down. In most cases with new construction, the builder appears to be giving you a deal — but here’s the truth: You’re actually paying for it. Just not in the way you think.
What’s the Difference Between a Temporary and Permanent Buydown?
Not all buydowns are the same — and understanding the difference can help you avoid surprise payments later on.
A temporary buydown (like a 2-1 buydown) lowers your interest rate only for the first few years.
In a 2-1 buydown:
• Year 1: your rate is reduced by 2%
• Year 2: it’s reduced by 1%
• Year 3 and beyond: it jumps to the full rate (e.g. 7%)
It feels affordable upfront, but your payment increases over time. You’ll need to prepare for that jump.
A permanent buydown, on the other hand, locks in a lower rate for the life of the loan.
You pay more upfront (usually several thousand dollars), but your monthly payment is consistently lower for 30 years.
The permanent option costs more initially, but offers long-term stability — which can be a powerful strategy if you're planning to stay or rent later.
Let’s Break It All the Way Down
Say you're buying a new construction home priced at $300,000. The builder is advertising a 3.99% interest rate, which sounds amazing when the current market rate is around 7%. But here’s what might be happening behind the scenes:
To “buy down” that rate, someone has to pay points upfront — and in many cases, it’s rolled into the price you’re paying.
In this case, the builder might have originally planned to sell the home for $280,000, but added $20,000 to the price to cover the cost of lowering your rate. So yes, your payment is lower because of the 3.99% rate, but you’re now financing a higher amount.
Even though you “got a deal,” you could be paying:
More interest over time
Higher property taxes (because they’re based on purchase price)
And closing costs on a larger loan
Is It Ever Worth It?
Absolutely — when used strategically, a rate buydown can be a powerful financial move. It makes the most sense if you're planning to stay in the home long enough to break even, if you're buying in an area where home values and rents are rising, or if you intend to hold the property long-term as an investment.
With a lower interest rate, you might save around $200 to $300 per month. Over time, that savings can really add up — and if you're planning to rent the home later, it could actually increase your monthly profit margin.
In fact, I’ve seen scenarios where buyers planned to live in the home for just one year, then turn it into a rental — and they were set to profit $500 per month based on a data analysis. In that case, the buydown gave them immediate payment relief and set them up for long-term cash flow.
The key is knowing your exit strategy. If you’re buying a forever home or building a portfolio, a rate buydown can be a blessing — as long as you're clear on how the numbers work.
My Advice to Buyers:
Always ask:
“What would my payment be without the buydown?”
“What’s the total cost of the loan over 30 years?”
“How much am I really saving monthly — and when do I break even?”
And remember: builders, agents, and lenders are in business. Just because something sounds like a deal doesn’t mean it’s free.
As your agent, I’m not here to sell you a dream — I’m here to help you own wisely and with full understanding. Because your financial freedom matters to me.
Have Questions/Concerns?
Feel free to reach out. I’d love to help you understand the numbers, walk through scenarios, or simply talk it through together. And if you'd like a deeper look at your options without feeling any pressure or obligation (trust me, I completely understand), I’d be happy to connect you with one of my lender partners who can break it down even further. No worries — we’ve got you!
