Temporary Mortgage Buydown: 3-2-1 and 2-1 Payment Schedule Guide

How the payment changes

A temporary mortgage buydown uses a subsidy to cover part of the scheduled payment for a set period. In a 2-1 example, the borrower’s share is based on the payment at a rate two percentage points below the note rate in year one and one point below in year two. From year three, the borrower pays the full scheduled amount. A 3-2-1 example follows the same pattern over three years, with reductions of three, two and one points.

The mortgage still amortizes at the note rate. Each month, the borrower’s payment and the subsidy together cover the full scheduled principal and interest. Fannie Mae’s temporary buydown guidance explains the requirements for loans it purchases.

Example on a $300,000 mortgage

Assume a 30-year fixed mortgage with a 6.5% note rate and a 2-1 buydown. The table shows monthly principal and interest only, rounded to cents.

Using unrounded payments, the subsidy for the first 24 months is about $6,828. The borrower's principal-and-interest payment rises by about $183 after year one and $193 after year two. Compare the full year-three payment with your budget, including taxes, insurance and any association dues.

Compare the written offers

Enter the loan amount, note rate and term in the temporary mortgage buydown calculator. The calculator models two subsidized years. For a 3-2-1 offer, ask for the lender’s schedule for all 36 months and check the subsidy in each year.

Check who funds the subsidy, how the agreement handles unused funds if you refinance or pay off early, and what you could receive if you used an available credit differently. Compare those terms with paying mortgage points for a permanent rate reduction.