The Buydown Calculator quantifies savings from a mortgage buydown, where an upfront payment temporarily lowers the interest rate. It calculates monthly and annual savings based on the buydown type, loan amount, and interest rate, assessing affordability impacts.
Available Buydown Options:
- 3-2-1 Buydown: Reduces rate by 3% (Year 1), 2% (Year 2), 1% (Year 3).
- 2-1 Buydown: Reduces rate by 2% (Year 1), 1% (Year 2).
- 1-1 Buydown: Reduces rate by 1% for two years.
- 1-0 Buydown: Reduces rate by 1% for Year 1.
Buydown Calculator
Types of Buydown Options
A mortgage buydown reduces the interest rate temporarily through an initial payment, easing early loan obligations. Options vary in duration and reduction magnitude:
| Buydown Type | Description | Interest Rate Reduction |
|---|---|---|
| 3-2-1 Buydown | Maximum reduction in Year 1, tapering over three years. | 3% (Year 1), 2% (Year 2), 1% (Year 3) |
| 2-1 Buydown | Moderate reduction over two years. | 2% (Year 1), 1% (Year 2) |
| 1-1 Buydown | Consistent reduction for two years. | 1% (Years 1-2) |
| 1-0 Buydown | Single-year reduction. | 1% (Year 1) |
How the Buydown Amount is Calculated
The buydown cost is the total expense to secure a reduced interest rate, derived from aggregating payment savings over the buydown period:
- Identify Reduced Rates: Apply annual reductions per buydown type (e.g., 3-2-1: 3%, 2%, 1%).
- Compute Payment Differentials: Calculate monthly payments at reduced rates, subtract from the original rate payment, yielding annual savings.
- Total Cost: Multiply each year’s monthly savings by 12, then sum across all years.
Example: 3-2-1 Buydown on $300,000 Loan at 6.25%
- Year 1: Rate at 3.25%; compute monthly savings × 12.
- Year 2: Rate at 4.25%; add to Year 1 total.
- Year 3: Rate at 5.25%; sum with prior years.
The aggregate represents the buydown cost for the three-year reduction.
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