2-1 Buydown vs Price Reduction Calculator
Use this calculator to compare a temporary 2-1 buydown with a purchase-price reduction that costs the seller the same amount. It shows the first two years of payment relief, the month when the price cut catches up, and which choice is ahead for your expected time in the home.
Better option at expected holding period2-1 buydown
- Savings at expected holding period
- $3,416.19
- Break-even month
- 13 years 3 months
- Required 2-1 buydown fund
- $7,283.01
- Equal-cost price reduction
- $7,283.01
- Loan amount before concessions
- $320,000.00
- Full monthly principal and interest
- $2,022.62
- First-year 2-1 buydown payment
- $1,621.39
- Second-year 2-1 buydown payment
- $1,816.92
- Payment after price reduction
- $1,976.58
- Lifetime price-reduction advantage
- $9,289.08
Cumulative savings comparison
| Point in mortgage | 2-1 buydown savings | Price-reduction savings | Option ahead |
|---|---|---|---|
| End of year 1 | $4,814.70 | $552.40 | 2-1 buydown |
| End of year 2 | $7,283.01 | $1,104.81 | 2-1 buydown |
| Expected holding period | $7,283.01 | $3,866.82 | 2-1 buydown |
| Full loan term | $7,283.01 | $16,572.09 | Price reduction |
Principal and interest only; taxes, insurance, mortgage insurance, HOA dues, and closing costs are not included.
The comparison period is capped at the selected loan term.
How to use this calculator
- Enter the contract price before applying either concession.
- Enter the down payment, note rate, and amortizing loan term.
- Choose whether a price reduction keeps the same cash down or the same percentage down.
- Enter how long you expect to keep the mortgage, then compare the holding-period result.
How the comparison is calculated
A 2-1 buydown lowers the borrower payment for the first two years, then the payment returns to the full note-rate amount. This calculator estimates the seller-funded buydown account as the difference between the full principal-and-interest payment and the reduced payments in year one and year two. It then compares that same seller cost with a price reduction of equal size.
Let H be the home price, d the down-payment percentage, r the full annual note rate, T the loan term in years, and N = 12T. The original loan amount is P = H × (1 − d). For any principal L and annual rate x, the monthly payment is:
A(L,x,N) = L × (x ÷ 12) × (1 + x ÷ 12)^N ÷ ((1 + x ÷ 12)^N − 1)
The full payment is A0 = A(P,r,N). The first-year buydown payment is calculated at r − 2%, and the second-year payment is calculated at r − 1%. The required buydown fund is 12 × (A0 − A1) + 12 × (A0 − A2).
The price-reduction side uses that same dollar amount as the purchase-price cut. If the buyer keeps the same cash down, the mortgage principal falls by the full price cut. If the buyer keeps the same down-payment percentage, principal falls by the financed share of the cut. The calculator then computes the full-rate payment on the reduced principal.
What moves the answer most
The expected holding period matters because the two choices save money on different timelines. The buydown is strongest in the first 24 months. The price reduction usually saves less each month, but it continues for the full loan term. A longer holding period, a larger price cut that reaches principal, or a higher note rate can make the price reduction catch up sooner.
What this calculator leaves out
The comparison includes principal and interest only. It does not include property tax, homeowners insurance, mortgage insurance, HOA dues, closing costs, appraisal effects, seller-concession limits, underwriting rules, or lender-specific buydown-account rounding. It also does not discount future savings for inflation, investment return, taxes, refinancing, sale, or early payoff.
Worked example
Suppose the home price is $400,000, the buyer puts 20% down, the note rate is 6.5%, and the term is 30 years. The loan amount before concessions is $320,000. The full principal-and-interest payment is about $2,022.62. The first-year buydown payment at 4.5% is about $1,621.39, and the second-year payment at 5.5% is about $1,816.92.
The estimated buydown fund is about $7,283.01, so the equal-cost price reduction is also $7,283.01. If the buyer keeps the same cash down, the reduced-principal payment is about $1,976.58. At a seven-year holding period, the buydown is still ahead by about $3,416.19. The price reduction catches up around month 159, and its lifetime advantage over 30 years is about $9,289.08.
Common questions
Is a 2-1 buydown better than lowering the purchase price?
It depends on how long the buyer keeps the mortgage and how the price cut affects the loan amount. A 2-1 buydown concentrates savings in the first two years. A price reduction creates smaller monthly savings that can continue for the full loan term.
How much does a 2-1 buydown cost the seller?
This calculator estimates the cost as 12 months of the difference between the full payment and the first-year buydown payment, plus 12 months of the difference between the full payment and the second-year payment. Actual lender worksheets may round payments or fund the buydown account differently.
When does a price reduction overtake a temporary buydown?
The break-even month is the first month when cumulative payment savings from the lower principal equal or exceed the cumulative savings from the 2-1 buydown. If the monthly savings from the price reduction are too small, the calculator reports that no break-even occurs during the selected mortgage term.
Does a 2-1 buydown change the mortgage note rate?
A standard temporary buydown does not usually change the note rate. It subsidizes the payment for the first two years, while the loan is still underwritten and scheduled around the permanent note rate and full payment.
Should the buyer keep the same cash down after a price reduction?
Keeping the same cash down makes the price cut reduce mortgage principal dollar for dollar. Keeping the same down-payment percentage reduces both cash down and loan principal, so the monthly payment savings are smaller but the buyer preserves more cash.
Can seller concessions pay for a temporary buydown?
Temporary buydowns are commonly structured as seller- or builder-funded concessions, but program limits and eligibility rules matter. Lender, agency, and investor requirements can limit the amount, source, and documentation of the subsidy.