1. What is a Mortgage Buydown?

A mortgage buydown is a financing technique where the borrower pays an upfront fee to reduce the interest rate on their mortgage loan. This results in lower monthly payments during the buydown period.

2. How Does the Calculator Work?

The calculator uses the simple buydown formula:

Where:

• \( Rate \) — Current mortgage interest rate (%)
• \( Buydown \% \) — Percentage points being bought down (%)

Explanation: The formula calculates the new effective interest rate after applying the buydown reduction.

3. Importance of Effective Rate Calculation

Details: Calculating the effective rate helps borrowers understand their true interest costs and compare different buydown options to make informed financing decisions.

4. Using the Calculator

Tips: Enter the current interest rate and buydown percentage as whole numbers or decimals (e.g., 5.25). Both values must be positive numbers.

5. Frequently Asked Questions (FAQ)

Q1: What types of buydowns are common?
A: The most common are temporary buydowns (like 2-1 or 3-2-1 buydowns) and permanent buydowns.

Q2: How is the buydown paid for?
A: Buydowns are typically paid through discount points purchased at closing or by the home seller as an incentive.

Q3: Are buydowns always worth it?
A: It depends on how long you plan to keep the mortgage. Use break-even analysis to determine if the upfront cost justifies the long-term savings.

Q4: Can you buydown to any rate?
A: Lenders typically have limits on how much you can buydown, often capping at 3% below the note rate.

Q5: Is the buydown tax deductible?
A: Points paid to buydown the rate may be deductible as mortgage interest, but consult a tax professional.