Financing tools
Temporary Buydown vs. Price Reduction
A temporary buydown lowers your out-of-pocket payment for a year or two, then reverts. A price reduction permanently lowers the loan. They are not the same thing — see exactly how each affects your payment and loan balance.
Direct answer: a temporary buydown does not lower your interest rate — the loan still amortizes at the full note rate the entire time. It subsidizes what you pay out of pocket for a year or two, funded by a third party (often the seller). A price reduction permanently shrinks the loan itself. Enter your numbers below to see both paths side by side.
Loan basics
Temporary buydown structure
Alternative: price reduction
Temporary buydown
- $2,174
- Year 1 payment
- $2,428
- Year 2 payment
- $2,694
- Year 3+ payment (note rate)
- $9,440
- Total buydown cost (2 years)
- $68,767
- Equity at year 5
The loan itself amortizes at the full note rate on the full loan amount the entire time — the buydown only subsidizes what you pay out of pocket in years 1–2. That subsidy is often funded by the seller as a concession, not necessarily by you directly.
Price reduction
- $395,560
- Reduced loan amount
- $2,632
- Payment (constant)
- $77,653
- Equity at year 5
A price reduction permanently lowers the loan amount, so the payment is the same every month from day one — no reversion, no third-party subsidy required. Down payment cash invested is held constant in this comparison; only the loan amount changes.
Read the loan estimate closely
A buydown and a rate reduction can look similar on a flyer.
Ask specifically whether a seller concession is being applied as a temporary buydown or a permanent rate buydown — they behave very differently after the subsidy period ends, and the loan estimate will show which one you’re actually getting.
Methodology
How this comparison works.
- Buydown path — the loan amortizes at the full note rate on the full loan amount for the entire term. Year 1 and Year 2 payments shown are what you pay out of pocket (calculated as the payment a reduced rate would produce); the difference between that and the real note-rate payment is the subsidy, typically funded by a seller concession.
- Price-reduction path — the loan amount itself is permanently smaller. The payment is constant from day one; there is no reversion and no third party involved.
- Equity at your horizon = purchase price minus the remaining loan balance at that point. This assumes the property value stays at the purchase price — appreciation is not modeled, since it applies equally to both paths and isn’t the point of this comparison.
This tool deliberately does not declare a single “winner.” Whether the buydown subsidy is effectively free to you (a seller concession) or comes out of your own funds is situation-specific — that context matters as much as the math.
Worked example (hypothetical)
A $450,000 purchase, 10% down, 7% note rate, 30-year term, with a 2-1 buydown: Year 1 payment is roughly $2,174, Year 2 is roughly $2,428, and Year 3 onward reverts to roughly $2,694 — the real note-rate payment the loan has amortized at from day one. The total two-year subsidy is roughly $9,440.
Using that same $9,440 as a price reduction instead lowers the loan to roughly $393,000, with a constant payment of roughly $2,615 from day one. At year 5, the price-reduction path shows roughly $80,063 in equity versus roughly $68,767 for the buydown path — because the buydown path financed the full (larger) loan amount throughout, while the price-reduction path started with a smaller loan from the beginning.
Downside cases
- When the buydown period ends, the payment jumps to the full note-rate payment — a real risk if that higher payment wasn’t comfortably affordable to begin with.
- A buydown funded by the buyer (rather than a seller concession) is a real cost with no permanent effect on the loan — worth confirming who is actually paying for it.
National considerations
Buydown structures (2-1, 1-0, 3-2-1) and whether sellers are offering concessions at all vary by market conditions.
Utah considerations
Seller willingness to fund a buydown or price reduction depends on local competing inventory and negotiating leverage, which vary by Utah county.
Author: Todd McClean, Realtor® | Real Estate Investment Strategist, CENTURY 21 Everest Realty Group. Reviewed July 19, 2026. This tool provides general real estate information and is not legal, tax, accounting, lending, securities, commodities, or financial-planning advice.
Next step
Negotiating a concession on an offer?
A strategy review can help decide which structure fits your situation.