Temporary vs. Permanent Rate Buydowns: What’s the Difference and Can You Do Both?

Understand the difference between temporary and permanent rate buydowns. Learn how each works—and how smart borrowers may combine both for maximum savings.

Understanding Mortgage Rate Buydowns: Temporary vs. Permanent

As mortgage rates fluctuate, homebuyers and sellers are seeking smarter ways to make home financing more affordable. Two common strategies to lower mortgage costs are temporary buydowns and permanent buydowns—and yes, in some cases, you can use both.

This article breaks down how each type works, what the differences are, and how CPF Mortgage can help structure a plan that fits your financial goals.

What Is a Temporary Rate Buydown?

A temporary buydown reduces the borrower’s interest rate for a limited period—typically one to three years. The most common format is the 2-1 buydown, where the interest rate is 2% lower in year one and 1% lower in year two, returning to the full note rate in year three.

Key Benefits:

• Lower monthly payments during the early years of the loan
• Easier transition into full mortgage payments
• Often funded by the seller or builder as a closing incentive

Best for:
Buyers expecting their income to increase, planning to refinance, or seeking short-term payment relief.

What Is a Permanent Rate Buydown?

A permanent buydown involves paying discount points at closing to permanently lower the interest rate for the life of the loan. One discount point typically costs 1% of the loan amount and may reduce the rate by 0.25%, depending on market conditions.

Key Benefits:

• Long-term monthly payment savings
• Lower total interest paid over the life of the loan
• Hedge against rising rates in the future

Best for:
Buyers planning to stay in the home for an extended period or who want long-term payment stability.

Key Differences: Temporary vs. Permanent Buydowns

Can You Use Both a Temporary and Permanent Buydown?

Yes—in certain situations, both strategies can be combined. For example:

• You may pay points at closing to reduce the starting note rate permanently,
• Then apply a 2-1 buydown structure to reduce the monthly payment even further during the first two years.

This hybrid approach can result in:

• Lower upfront payments
• Long-term savings
• A more competitive offer for sellers to consider

Note: This structure requires careful coordination with underwriting guidelines and funding sources. CPF Mortgage specializes in designing compliant, effective strategies like these.

Disclaimer:
This information is for educational purposes only and does not constitute financial or mortgage advice. All loan programs are subject to qualification and underwriting approval. Interest rates and program terms are subject to change without notice. CPF Mortgage is an Equal Housing Lender. NMLS #222883.