How to use a builder rate buydown to reduce your mortgage payment

Key takeaways

• A builder interest rate buydown is a payment from a builder to the lender that lowers the interest rate of your mortgage loan.
• In a temporary rate buydown, the buyer’s monthly payments decrease for a set period of time and rise after the buydown period ends.
• Buyers should compare builder buydowns with other incentives and understand how market conditions affect their value before making a decision.

A builder interest rate buydown is a financial incentive offered by home builders to make newly constructed homes more affordable.

The buydown lowers the interest rate of a mortgage, either temporarily or permanently.

Here's what you need to know.

In a typical buydown, a homebuilder pays money to your lender to lower your interest rate and, in turn, your monthly payments. Builders do this to move inventory of unsold homes and boost sales instead of lowering home prices. If builders lowered home prices, they would likely need to do it for all homes in their inventory. Using a rate buydown lets builders maintain the full price while lowering monthly payments.

In a temporary buydown, the builder pays money into an escrow account managed by the lender. Every month the lender draws from the account to supplement your monthly mortgage payment. When the money’s gone, you start paying the full mortgage amount.

Temporary buydowns lower the mortgage interest rate for one to three years. Builders typically offer a 3-2-1 buydown, where the interest rate is cut by three points in the first year of a mortgage, two points in the second and one point in the third.

Here's a look at how the payments would work on a 30-year mortgage for a $400,000 and with a 7% interest rate. The monthly payments for principal and interest would be considerably lower:

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Buyers still have to qualify for the loan at its full payment, even though they get a temporary break on the interest rate. A lender will want to know that you can afford the full monthly payments regardless of the lower initial payments.

Permanent buydowns reduce your rate for the full loan term. The builder buys points on your mortgage, giving you a lower payment. Each point costs 1% of your loan amount and typically lowers your rate by about 0.25%, according to AmeriSave, a lender in Sandy Springs, Georgia.

For example, consider a $350,000 30-year loan at 6.5%. Your monthly payment for interest and principal would cost $2,212. Buying two points for a total of $7,000 would bring that rate down to 6%. Your new payment for principal and interest would be $2,098, saving you about $114 each month.

As of June 2025, about 64% of new homes sold by the largest home builders featured a rate buydown, according to the American Enterprise Institute. The average buydown rate was around 1.3 percentage points, it said.

Buyers should weigh the short-term savings of a temporary buydown against the long-term benefits of a permanent one. If you plan to sell or refinance soon, a temporary buydown may make more sense.

Builder rate buydowns can make new construction homes more affordable by lowering your monthly payment, especially in the first years. This helps buyers qualify for larger loans or manage their budgets during the early years of ownership.

However, buyers will face higher payments after a temporary buydown period ends. It's important to compare the total cost of the buydown against other incentives.

Buyers can consider paying mortgage points on their own to lower their rate or look for lender-paid buydowns and closing cost credits. Some builders offer upgrades, price reductions or other perks instead of rate buydowns. Compare all options with your lender and builder to find the best fit.

Related article:

• Should you buy down your interest rate on a home loan?

Yes, buyers can often negotiate the size or structure of a builder buydown, especially in markets with high inventory. Builders may adjust the buydown or offer other incentives if you ask.

A builder buydown does not prevent refinancing, but temporary buydowns may lose their benefit if you refinance before the buydown period ends. Permanent buydowns stay in place unless you refinance into a new loan.

No, builder buydowns are most common with conventional loans. FHA, VA and USDA loans may have stricter rules or limits. Check with your lender to confirm eligibility.

If you sell before a temporary buydown ends, you lose the remaining benefit. Permanent buydowns end when you pay off or refinance the loan. Buyers planning to move soon should consider whether a buydown is worth the upfront cost.