PATRICK'S QUICK ANSWER
A permanent buydown lowers your rate for the entire loan, while a temporary one, like a 2-1, lowers it for the first two years before returning to market. Permanent costs more and rewards long stays; temporary is cheaper and helps with early cash flow, often funded by sellers. I weigh how long you will keep the loan and whether you need relief now or for the long run. The right structure matches the payment you need. Ask Patrick how permanent vs temporary buydowns would work for your loan.
A permanent buydown uses discount points to lower your interest rate for the entire loan term. A temporary buydown (2-1 or 3-2-1) reduces your rate for the first 1-3 years only. Permanent buydowns are best for long-term owners who plan to stay 7+ years. Temporary buydowns work well for buyers who expect their income to grow or plan to refinance within a few years.
Permanent Buydown Explained
You pay discount points upfront to permanently reduce your interest rate. One point costs 1% of the loan amount and typically reduces the rate by 0.25%. The lower rate applies for the full life of the loan. On a $350,000 loan, one point costs $3,500 and saves about $55 per month permanently.
Temporary Buydown Explained
A 2-1 buydown reduces your rate by 2% in year one and 1% in year two, then returns to the full rate in year three. A 3-2-1 buydown reduces by 3%, 2%, and 1% over three years. The subsidy is deposited into an escrow account at closing and used to supplement your monthly payments during the reduced-rate period.
Comparison Table
| Permanent | Temporary | |
|---|---|---|
| Rate reduction duration | Full loan term | 1-3 years |
| Upfront cost | 1-3% of loan | 1-5% of loan |
| Best for | Long-term owners | Short-term / refinance soon |
| Refinance risk | Points lost if refinance early | Lower risk, shorter benefit period |
| Common use | Buyer pays points | Builder / seller incentive |
Cost Comparison
On a $350,000 loan, a permanent buydown of 1 point costs $3,500 and saves $55/month. Over 5 years that is $3,300 in savings -- almost breaking even. Over 10 years it is $6,600 in savings, netting $3,100.
A 2-1 temporary buydown on the same loan might cost $5,000-$7,000 and saves $300-$400/month in year one, $150-$200/month in year two, then nothing after.
When to Use Each
Permanent buydowns are ideal when you plan to keep the loan 7+ years, want predictable payments, and have cash available. Temporary buydowns work well when you expect income growth, plan to refinance in 2-3 years, or the builder/seller is paying for it.
Ask Patrick about permanent vs temporary buydowns
Get a straight answer on permanent vs temporary buydowns and whether paying points makes sense for your loan.
