Are you wondering if a 2-1 rate buydown or paying points for a permanent buydown is the smarter move for your Redmond home purchase? You are not alone. With payments top of mind, it helps to understand how each option actually works and when one fits better than the other. In this guide, you will learn the basics, see simple math examples, and get clear steps to decide with confidence. Let’s dive in.
2-1 buydown basics
A 2-1 buydown is a temporary payment reduction for the first two years of your mortgage.
- Year 1: your effective rate is reduced by 2 percentage points from the note rate.
- Year 2: your effective rate is reduced by 1 percentage point from the note rate.
- Year 3 and beyond: payments return to the full note rate.
The payment reduction is funded at closing and placed into a buydown escrow account. Those funds, which can come from a seller, builder, lender, or you, cover the difference between the full payment and the reduced payment during the first two years. Lenders usually require the full subsidy to be available at closing.
Most lenders underwrite your loan using the note rate, not the lower temporary rate. This means a 2-1 buydown may not change what you qualify for, even though it lowers your first two years of payments.
Permanent buydown basics
A permanent buydown lowers your note rate for the life of the loan by paying discount points at closing.
- One discount point typically equals 1% of the loan amount.
- A common rule of thumb is that 1 point might reduce the rate by about 0.25%, although pricing varies by lender and market conditions.
Points can be paid by you or negotiated as a seller concession. Because the lower rate lasts for the entire loan, this strategy can reduce your long-term interest cost and monthly payment.
Simple, hypothetical math on a $400,000 loan
The numbers below are for illustration only to show how each option works. Your exact pricing will depend on the day’s rates, your credit profile, and the loan program.
- Baseline example: 30-year fixed, $400,000 loan, note rate 6.00%
- Full payment at 6.00%: about $2,398 per month (principal and interest)
2-1 buydown pattern:
- Year 1 at an effective 4.00%: about $1,909 per month
- Year 2 at an effective 5.00%: about $2,147 per month
- Years 3+ at 6.00%: back to about $2,398 per month
Subsidy needed to fund the 2-1 buydown:
- Year 1 savings: about $489 per month, about $5,868 for the year
- Year 2 savings: about $251 per month, about $3,012 for the year
- Total estimated subsidy: about $8,880, which is roughly 2.22% of the loan amount
Permanent buydown example:
- Reducing the rate from 6.00% to 5.50% might cost about 2 points, or 2% of the loan amount, about $8,000.
- New payment at 5.50%: about $2,271, a savings of about $127 per month, about $1,524 per year.
- Simple payback period: about 5.3 years, calculated as $8,000 divided by $1,524.
What these examples suggest:
- A 2-1 buydown can create more noticeable savings in the first two years for a similar up-front cost, but the payment returns to the higher note rate in year three.
- A permanent buydown has a higher payback threshold. It can be a strong fit if you plan to hold the loan long enough to recover the cost and enjoy ongoing savings afterward.
- Actual point pricing and savings vary by lender and program. Always ask for current quotes and a side-by-side Loan Estimate.
Pros and cons at a glance
2-1 buydown pros
- Significant short-term payment relief for the first 24 months.
- Helpful if you expect income growth or plan to refinance within a few years.
- Can be negotiated as a seller concession, which can reduce your out-of-pocket cash at closing.
2-1 buydown cons
- The note rate usually stays the same, so payments rise in year three.
- Often does not change your qualifying amount because lenders underwrite at the note rate.
- You are exposed to the higher payment in year three unless you refinance.
Permanent buydown pros
- Lowers the note rate for the life of the loan.
- Reduces total interest paid over time.
- Attractive if you plan to stay long-term and can afford the up-front cost.
Permanent buydown cons
- Requires a larger cash outlay up front.
- Payback can take several years, especially if the rate reduction is modest.
- May not be the best use of funds if you need strong cash reserves or have higher-interest debts to address.
Who pays and how to negotiate in Redmond
Buydowns can be paid by you, the seller, a builder, or via a lender credit. In a buyer-favorable negotiation, a seller-funded 2-1 buydown can be an effective way to lower your first two years of payments without increasing your closing costs.
Be aware that seller concessions have caps that vary by loan program and down payment level. Conventional, FHA, VA, and USDA loans all set different limits and documentation rules. Confirm the limits for your loan program with your lender before you write an offer that includes a seller-funded buydown.
Qualifying, disclosures, and taxes
- Qualification: Most lenders qualify you at the note rate, not the reduced temporary rate. Some lenders may treat it differently if the buydown is fully funded, but policies vary. Confirm with your lender.
- Disclosures and closing: Buydown funds and any lender credits must show on your Loan Estimate and Closing Disclosure. Lenders usually require the subsidy to be deposited at closing into an escrow that applies the reduced payments from month one.
- Taxes: Discount points used for a permanent buydown can be treated as prepaid interest and may be deductible if IRS rules are met. Temporary buydowns can be treated differently depending on who pays and how funds are used. Speak with a tax professional about your situation.
When each option fits best
Consider these common scenarios to guide your choice:
- Short-term payment relief or a likely refinance within a few years: a 2-1 buydown can align well with your timeline.
- Long-term ownership and a plan to keep the loan: a permanent buydown may be worth the up-front cost, especially if the years-to-breakeven works for you.
- Negotiation leverage available: if the seller is open to concessions, a seller-funded 2-1 buydown can ease your first two years without raising your cash to close.
- Tight qualification at the note rate: be cautious. Since most lenders underwrite at the note rate, a temporary buydown may not improve your qualifying position.
How to choose your path
Use this simple process to compare options for a Redmond purchase:
- Clarify your time horizon
- Ask yourself how long you expect to keep the home and the loan. If your horizon is under five years, a 2-1 buydown may align better with your plan.
- Measure your cash on hand
- Decide how much you are comfortable paying up front. Points require cash or a seller concession, while a seller-funded 2-1 buydown can protect your cash reserves.
- Run a payback analysis
- For permanent buydowns, divide the up-front cost by the annual payment savings to estimate years to breakeven. Make sure you will likely own the home longer than that.
- Ask lenders for precise quotes
- Request a side-by-side Loan Estimate that shows: no buydown, a 2-1 buydown, and one or two permanent buydown options. Verify how each lender underwrites the buydown and how they handle buydown escrow accounting.
- Check seller concession limits
- Confirm the cap for your loan type and down payment. This protects your offer strategy and avoids surprises at underwriting.
- Plan for year three
- If you choose a 2-1 buydown, build a budget for the full payment starting in year three. Keep an eye on rates and be ready to evaluate a refinance if it makes sense.
- Keep flexibility
- Markets change. Choose the option that helps you buy comfortably today but still leaves room to pivot if rates fall or your plans evolve.
Next steps in Redmond
Both 2-1 and permanent buydowns can be smart tools when you match them to your timeline, cash position, and goals. The best way to make a confident choice is to compare real quotes from a local lender and tailor your offer strategy to today’s Redmond market conditions.
If you want help weighing the options and structuring a strong, seller-friendly offer, connect with a local guide who knows Central Oregon and negotiates these concessions often. Reach out to Amanda Johnson to talk through your goals, review current lender quotes, and map out the clearest path to the right payment for your Redmond home.
FAQs
What is a 2-1 buydown for a Redmond home purchase?
- A 2-1 buydown is a temporary subsidy that lowers your effective rate by 2% in year one and 1% in year two, then your payment returns to the note rate in year three.
Does a 2-1 buydown permanently reduce my mortgage rate?
- No, it only reduces payments for the first two years. The underlying note rate usually stays the same for the rest of the loan.
Who can pay for a rate buydown in Central Oregon?
- The buyer, the seller, a builder, or the lender can fund a buydown. Seller-funded buydowns are common negotiation tools when concessions are available.
Will a temporary buydown help me qualify for the loan?
- Usually lenders qualify you at the note rate, so a temporary buydown often does not change your qualifying amount. Some lenders may treat it differently, so ask your lender.
How much does a 2-1 buydown typically cost?
- The cost is the total difference between the full payment and the reduced payments during years one and two, funded up front at closing. Lenders will calculate the required subsidy for your loan.
Are discount points for a permanent buydown worth it?
- They can be if you plan to keep the loan long enough to pass the breakeven point. Divide the cost of points by the annual savings to estimate years to recoup the cost.
Are there any tax benefits to paying points in Oregon?
- Discount points may be deductible as prepaid interest if IRS rules are met. Temporary buydowns can be treated differently. Consult a tax professional for advice specific to you.
