What's the Rundown on Buying Down Your Interest Rate
We’re well into autumn and the trees are becoming barer every day. If only your interest rate could fall just as fast as the leaves. Well, your friends at Thurman Homes don’t want you to just sit around waiting for a miracle. We’re going to help you create your own by teaching you to make smart moves that make homeownership not just possible, but practical. Thanks to our friends at BiggerPockets for sharing this often overlooked interest rate hack!
It’s called the rate buydown. In this article we’ll be breaking down the highlights of what makes this hack so beneficial and how you can do it. So instead of crossing your fingers for lower interest rates, keep reading to see how you can manufacture one right now, save money from day one, and open the door to bigger financial flexibility later.
What’s a Rate Buydown?
In plain English, a rate buydown lets you pay a little upfront to lower your mortgage interest rate. It’s like prepaying for peace of mind. That lower rate can be temporary (just for the first few years) or permanent (for the life of your loan). Either way, the goal is simple — smaller payments, better cash flow, and more breathing room.
And the best part? You don’t always have to foot the bill yourself. In the right market, sellers or builders can fund the buydown through concessions. So instead of haggling over price, you can ask for money that directly cuts your monthly payment. That’s the kind of financial jiu-jitsu we love to see!
Temporary vs Permanent Buydowns
Temporary Buydowns: Short-Term Savings
Think of these as the “try before you buy” option for lower payments. The most common structures are:
- 3-2-1 Buydown: Year 1, your rate drops 3%; Year 2, 2%; Year 3, 1%.
- 2-1 Buydown: Year 1, down 2%; Year 2, down 1%.
- 1-0 Buydown: Year 1, down 1%.
The difference between your discounted payments and the actual loan rate comes from a subsidy account, typically funded by you, the seller, or the builder.
Why it’s smart: you get instant relief while you settle in, improve your cash flow, or wait for rates to drop.
Permanent Buydowns: Long-Term Wins
Permanent buydowns work by trading discount points (an upfront cost at closing) for a lower rate forever. Typically, one point equals 1% of your loan amount. In return, you get a lasting drop in your rate — and total interest paid over the life of the loan.
Why it’s smart: if you plan to stay in your home for several years, this strategy can save you thousands in interest and give you more stable, predictable payments.
When a Buydown Makes Sense
- You want lower payments during the first few years of ownership.
- You’re planning to refinance when rates improve, but want relief now.
- You’re optimizing your debt-to-income ratio for future financing.
- You’re buying a new construction home where builder incentives can fund the buydown.
Crunching the Numbers
Note: The following are sample terms for illustration purposes only.
| Year | Interest Rate (APR) | Monthly P&I |
|---|---|---|
| Year 1 | 3.375% (3.507% APR) | $1,866 |
| Year 2 | 4.375% (4.521% APR) | $2,107 |
| Year 3 | 5.375% (5.537% APR) | $2,363 |
| Year 4 | 6.375% (6.553% APR) | $2,633 |
These examples show how a 3/2/1 buydown structure can ease your monthly payments at the start of your mortgage journey. Year 1 offers the biggest savings, giving you room to settle in before rates adjust upward each year.
Stay longer than that, and you’re saving serious cash.
Why New Construction is the Secret Weapon
Here’s the real power play — many builders prefer offering closing cost credits over lowering their sales price, which means those credits can be used for your buydown.
At Thurman Homes, we often see clients secure interest rates as low as 3.99% by pairing builder incentives with smart buydown structures. That’s like turning a “maybe someday” dream home into a “let’s move in next month” reality.
And because our new builds are move-in ready with warranties and zero deferred maintenance, you’re not just saving on your mortgage — you’re saving on repairs, too.
Stop Waiting — Start Winning
Waiting for rates to drop is not a plan. Whether you go for a temporary 2-1 buydown for short-term comfort or a permanent buydown for lasting savings, you can take control of your mortgage math right now — and still refinance later if the market improves.
At Thurman Homes, we’ll help you run the numbers, explore options, and negotiate the best path to homeownership.
Contact us today for a complimentary number-crunching consultation with Michael or our preferred lender partner.
Let’s turn your “someday” into right now — and your mortgage rate into something worth smiling about.
