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, Mountainland Realty, Inc.. 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.