Permanent Interest Rate Buydowns

Permanently buying down your interest rate can save you thousands of dollars over the life of your loan.

With high interest rates affecting home affordability, many buyers and sellers are exploring creative ways to make deals work. One powerful strategy gaining attention is the permanent interest rate buydown.

But what exactly is it—and how does it differ from the more well-known temporary buydowns like the 2-1 or 1-0?

Let’s break it down.

What Is a Permanent Interest Rate Buydown?

A permanent buydown is when the seller or builder pays an upfront fee, called discount points, at closing to reduce the buyer’s mortgage interest rate for the life of the loan.

This lower rate can significantly reduce monthly payments — permanently.

Example:

• Loan amount: $400,000

• Market interest rate: 6.5%

• Permanent buydown rate: 5.75%

• Monthly savings: approximately $200

• Lifetime savings over 30 years: more than $70,000

This is typically paid through seller concessions negotiated during the purchase contract.

Temporary vs Permanent Buydowns: What’s the Difference?

Feature	Permanent Buydown	Temporary Buydown (e.g. 2-1)
Rate Reduction Duration	Life of the loan	1–2 years only
Who Pays	Seller or builder	Seller or builder
Buyer Benefit	Long-term monthly savings	Short-term payment relief
Popular When...	Buyers want lasting savings	Buyers expect to refinance soon
Example Rate	Reduced from 6.5% to 5.75%	Year 1: 4.5%, Year 2: 5.5%, then 6.5%

How This Helps in Today’s Market

With rising home prices and high borrowing costs, a permanent buydown can make homeownership more affordable long-term—especially for buyers who plan to stay in their home for several years.

For Buyers:

• Lower monthly payments for the life of the loan

• Easier to qualify with a lower debt-to-income ratio

• No payment shock after a year or two like with a temporary buydown

For Sellers:

• Offer a valuable incentive instead of reducing list price

• Attract more qualified buyers

• Can use seller-paid buydowns to close the deal faster

A Smart Alternative to Price Reductions

Let’s say a home is listed at $500,000. Instead of dropping the price to $490,000, the seller offers a $10,000 credit toward a permanent buydown.

• Buyer still pays $500,000

• Seller nets close to the same

• Buyer gets lower payments — every single month

In many cases, the monthly savings are greater than what they’d get from a $10,000 price cut.

Final Thoughts on Permanent Rate Buydowns

In today’s real estate climate, permanent rate buydowns are a win-win strategy. They offer buyers lasting affordability and help sellers move properties without slashing prices.

Whether you're buying or selling, talk to your real estate agent and loan officer about how a permanent buydown can work for your next deal.

How I Can Help You

When it comes time to purchase a home, I want to help you! Hopefully articles like this give you good information and a better understanding of the mortgage world but let me use my experience and expertise to help you with your particular situation.

I tell my clients and referral partners that a mortgage transaction starts with a simple conversation. Let’s talk about your financial situation, budget, and goals so that I can help you determine the best solution for you. During a 10-minute informal conversation, we can get you on the right path as it relates to a home purchase or mortgage refinance.