Comparison · 2-1 Buydown vs Permanent · 2026

Is a 2-1 buydown or a permanent rate buydown smarter?

✓ Last reviewed by Ken Clark Jr., NMLS #225375 — June 2026

Both are tools that reduce your monthly payment. A 2-1 buydown gives you a big temporary break. A permanent buydown gives you a smaller break that lasts the life of the loan. Which one wins depends on how long you plan to keep the loan and where rates are headed.

2-1 Buydown vs Permanent Buydown at a glance

Factor	2-1 Temporary Buydown	Permanent Buydown
Rate reduction	2% Year 1, 1% Year 2, 0% Year 3+	0.25-0.5% reduction per point, forever
Who pays	Usually the seller	Usually the buyer
Best hold period	1-3 years if planning to refinance	5+ years
Risk if you stay long-term	Payment jumps in Year 3	No risk; rate locked
Sensitivity to rate environment	Helps when you expect rates to drop	Helps regardless of where rates go
Cost on $500K loan	Typically funded by 3-4% seller credit	$5K per point ($10K for 0.5% rate cut)
Refinanceability impact	Easier (lower note rate harder to beat later)	Harder (already low rate)
Tax deductibility of cost	Possibly (consult CPA)	Possibly (consult CPA)

What a 2-1 buydown actually does

A 2-1 temporary buydown reduces your interest rate by 2 percent in Year 1 and 1 percent in Year 2, then returns to the note rate in Year 3 and every year after.

Example: note rate of 6.5 percent. With a 2-1 buydown:

Year 1: you pay at 4.5 percent (a much lower payment)
Year 2: you pay at 5.5 percent
Year 3+: you pay at the full 6.5 percent for the remaining 28 years

The cost of the buydown is funded upfront, typically by the seller as a closing-cost credit. The buyer rarely pays for the buydown directly.

What a permanent buydown does

A permanent buydown means paying discount points at closing to permanently lower your interest rate for the life of the loan. Each "point" costs 1 percent of the loan amount and typically reduces the rate by about 0.25 percent (varies by program).

Example: note rate of 6.5 percent. Pay 2 points ($10,000 on a $500K loan) to lower the rate to 6.0 percent permanently. Every monthly payment for the next 30 years uses the lower 6.0 percent rate.

When 2-1 buydown wins

You are stretching to buy now and want lower payments while you settle into the home, fix up the property, or grow into your income.
You expect rates to drop and plan to refinance in Year 2 or Year 3, exiting before the buydown expires. Important: there is no guarantee rates will drop, and rates are unpredictable.
The seller will fund it. If a motivated seller offers a 4 percent closing credit, a 2-1 buydown often delivers more buyer benefit than a permanent rate buy-down or price reduction.
You have other big Year-1 cash demands like furniture, moving costs, or home improvements.

When permanent buydown wins

You plan to stay in the home 7+ years. A permanent buydown delivers savings every month for the life of the loan. Long hold periods win every time.
You want predictable budgeting. No year-to-year payment changes. Same rate for 30 years (until you refinance).
You have cash and want to invest it in a guaranteed return. Buying down 0.5 percent permanently for $10,000 on a $500K loan typically delivers a guaranteed monthly savings that, expressed as a return, beats most CDs and bonds.

The hybrid play: seller-funded 2-1 PLUS rate buydown

The smartest move when a seller offers a 4 percent credit: split the credit between a 2-1 buydown AND a small permanent buydown. The 2-1 part eases the first 2 years. The permanent part lowers the rate forever. This combo is underused, and we model it for clients regularly.

The bottom line

Use a 2-1 buydown when the seller is funding it and you want short-term breathing room. Use a permanent buydown when you have cash to deploy and plan to keep the loan for years. Use both when a motivated seller gives you a big credit and you want to optimize the whole package. Right tool, right scenario.

Frequently Asked Questions

What happens if I cannot refinance before the 2-1 buydown ends?

You still own the home at the full note rate. You will have made smaller payments in Years 1 and 2, so you are not financially worse off than if you had bought without the buydown. But the higher payment in Year 3 must be sustainable.

Can I do a 3-2-1 buydown instead?

Yes, 3-2-1 buydowns exist (3% reduction in Year 1, 2% in Year 2, 1% in Year 3, then note rate). They are more expensive and rarer. Most sellers fund 2-1 buydowns.

Does a permanent buydown make sense if I might refinance later?

Only if you expect to stay in the home for several years AND rates are unlikely to drop substantially. Buying down a 6.5% rate to 6.0% permanently does not help much if you refinance into a 5.5% rate next year.

Is a 2-1 buydown the same as an ARM?

No. An ARM (adjustable-rate mortgage) has a rate that adjusts based on a market index over time. A 2-1 buydown is a fixed-rate loan with a temporary rate subsidy funded at closing.

Can I get a buydown on an FHA, VA, or conventional loan?

Yes, all three accept temporary and permanent buydowns. VA and FHA have specific rules on how much the seller can contribute. We coordinate the offer to maximize buyer benefit.

This comparison is for educational purposes only and is not a commitment to lend or guarantee of approval. Loan programs, rates, terms, and eligibility requirements are subject to change and depend on credit, income, property, occupancy, program guidelines, and other underwriting factors. Equal Housing Opportunity. PRMG Mortgage. NMLS 225375. Ken Clark Jr. NMLS #225375.

About the Author: Ken Clark Jr.

Certified Mortgage Advisor and Branch Manager at PRMG Mortgage (NMLS #75243). 28 years in mortgage lending. Specializes in FHA, VA, conventional, DPA, jumbo, Non-QM, renovation, and construction financing for buyers and investors in Sacramento, New Jersey, and 47 other states (NY excluded). Three-time Gold Award winner for Best Mortgage Company in Sacramento (2023, 2024, 2025). NMLS #225375.

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