It’s a buyer’s market for U.S. housing, with 47% more sellers offering homes than buyers in April 2026, according to data from Redfin. When buyers are scarce, sellers often try to stand out by offering concessions like the 2-1 buydown, which is a temporary rate buydown that reduces mortgage payments for the first two years of a loan.

A 2-1 buydown is an attractive concession when interest rates are high but are expected to drop. Melissa Cohn, regional vice president at William Raveis Mortgage, points to a potential peace deal with Iran and falling oil prices as indications that mortgage rates may fall soon.

“It’s a good time to offer something that’s temporary, knowing that the buyer will hopefully have the opportunity to refinance at a much better rate at some point in the near future,” Cohn said.

Read more: What are seller concessions?

What is a 2-1 buydown?

A 2-1 buydown is an agreement to lower the payments on a home loan for the first two years. Lenders allow sellers, builders, or borrowers to pay money up front in exchange for paying less interest during the buydown period.

In the first year of a 2-1 buydown, the interest rate the borrower pays is two percentage points below the note rate, or the interest rate that’s set in the mortgage documents. In the second year, the interest rate is one percentage point below the note rate. And in the third year, the interest rate goes back to the note rate.

How does a 2-1 buydown work?

A 2-1 buydown starts with drafting a buydown agreement, which is signed by the borrower and the seller, builder, or whoever is purchasing the buydown. The purchaser deposits a sum of money, called the subsidy, into an escrow account. The lender then uses that money to cover some of the interest on the loan during the first two years.

The rate listed in the mortgage promissory note doesn’t change, and the borrower has to qualify for the loan with the full, unsubsidized payment. 

To understand how a 2-1 buydown lowers payments temporarily, take a look at an example. Here are the rate and monthly principal and interest payments a borrower would pay on a 30-year mortgage with a $400,000 principal and a 6.5% note rate, according to calculations by PrimeLending.

Other buydown structures

A buydown can take other forms that lower the interest rate the borrower pays over different time periods. The following are typical buydown arrangements.

• 1-0 buydown. For the first year, the borrower pays an interest rate that’s one percentage point lower than the note rate. In the second year, the interest rate goes back to the note rate.

• 3-2-1 buydown. In the first year, the interest rate the borrower pays is reduced by three percentage points; in the second year, two percentage points; and in the third year, one percentage point. The rate goes back to the note rate in the fourth year.

• Permanent buydown. The borrower pays discount points worth 1% of the loan amount, and each point lowers the interest rate by a set increment for the life of the loan.

Read more: What are mortgage discount points, and should you pay for them?

Who pays for a 2-1 buydown?

Usually, a seller or builder pays for a 2-1 buydown. According to research from HomeLight, interest rate buydowns were among the most common seller concessions as of the third quarter of 2025. A lender can also pay for a temporary rate buydown as a promotional offer. 

A borrower can pay for a 2-1 buydown, too, but it may not make sense to do so. A borrower who pays the buydown subsidy themselves would simply be paying a portion of their interest in advance. It’s more common for borrowers to purchase permanent buydowns because if you keep the loan long enough, you can eventually break even on the buydown and save money.

How much does a 2-1 buydown cost?

The up-front cost of a 2-1 buydown is the same as the interest savings over the two years of the buydown period. So, the cost depends on the loan amount and the interest rate you’re starting with. For a $400,000 30-year loan with a 6.5% interest rate, the cost is about $9,100. Sellers may cover the cost of this buydown in place of a price reduction.

When does a 2-1 buydown make sense?

A 2-1 buydown may make sense if you’re expecting interest rates to drop within a couple of years. In that case, you can enjoy lower payments during the buydown period and then refinance before you have to pay the full interest rate.

A temporary buydown can also be helpful if you’re growing your income and want a reprieve from higher payments for a year or two. For example, maybe you’re starting a business and expect to earn more income as you grow your customer base. Likewise, you might consider a temporary buydown if you have higher short-term expenses, such as increased childcare costs for a year or two until a child is old enough for school. You can devote more of your budget to childcare during the buydown timeframe, then make higher payments on the mortgage going forward.

Temporary buydowns tend to make sense when the seller, builder, or another party pays for them. If you’re buying down the rate yourself, paying interest upfront for a temporary buydown generally isn’t worth it because there’s no savings over time.

A 2-1 buydown isn’t a good idea if you won’t be able to afford the full payment in the third year and beyond, so plan out the effect on your budget and make sure you can actually absorb the higher costs later. Keep in mind that some living expenses, like childcare, tuition, and out-of-pocket healthcare spending, aren’t included in your debt-to-income ratio and therefore don’t factor into lenders’ decisions to qualify you for a loan.

2-1 buydown vs. permanent buydown — which is better?

A 2-1 buydown or another temporary buydown can be a good choice when the seller is paying for it, and you need a temporary break from higher mortgage payments, such as when your expenses are momentarily high, or your income is going to rise soon. It’s also the better choice when you plan to refinance within a couple of years.

A permanent buydown is often the better option if you plan to hold on to the mortgage long-term. You can save money over time, and it can be easier to qualify for the loan because you get to qualify at the reduced rate. But paying the up-front cost is worth it only if you’re not going to move or refinance in the near future.

“A permanent buydown, I think, only makes sense when you believe that we’re at the bottom of a rate cycle and that’s a rate that you’re going to keep for a long time. Knowing that you’re likely to be refinancing in the next year or two, I think it’s just throwing money out the door,” Cohn said.

And if you’re paying for a buydown yourself, consider whether you’d be better off making a larger down payment instead. 

Temporary vs. permanent rate buydown FAQ

Is a 2-1 buydown worth it?

Whether a 2-1 buydown is worth it depends on who’s paying for it and how you expect your financial situation to change in the next two years. A temporary buydown is more likely to be advantageous if the seller or builder is covering the cost. If you plan to refinance soon or if you’ll have higher income or lower expenses in two years, agreeing to a buydown offer might make sense. 

Can a seller pay for a 2-1 buydown?

A seller can pay for a 2-1 buydown, as can a builder, lender, or other interested party to the sale of the home. It’s common for sellers to fund temporary buydowns as a concession to attract buyers.

What happens to the buydown funds if I refinance early?

If you refinance before the buydown timeframe is over, the unused funds remaining in the escrow account typically go toward paying off the loan principal. However, some buydown agreements state that the funds are released to the borrower or the lender in this situation.