At Integrity Capital, our mission is to help borrowers make smart, informed decisions with
confidence. One tool that can dramatically improve early cash flow is a temporary interest
rate buydown—especially in a higher-rate environment or when buying an investment
property.
✅ What Is a Temporary Rate Buydown?
A temporary buydown is a useful strategy to reduce your mortgage interest rate
during the first few years. A temporary buydown is pre-funded at closing through an
upfront deposit into a buydown escrow account. This account is used to
supplement the borrower’s monthly payment in the early years.
Important Note:
This is not an interest-only loan or negative amortization structure. The loan is fully
amortizing from day one. The full monthly principal and interest (P&I) is being paid
every month—it’s just that part of it is funded from the buydown account initially.
✅ Common Buydown Structures
🔹 3-2-1 Buydown
➤ Year 1: 3% below the note rate
➤ Year 2: 2% below the note rate
➤ Year 3: 1% below the note rate
➤ Year 4 onward: Full note rate applies
🔹 2-1 Buydown
➤ Year 1: 2% below the note rate
➤ Year 2: 1% below the note rate
➤ Year 3 onward: Full note rate applies
🔹 1-1 Buydown
➤ Year 1: 1% below the note rate
➤ Year 2: 1% below the note rate
➤ Year 3 onward: Full note rate applies
🔹 1-0 Buydown
➤ Year 1: 1% below the note rate
➤ Year 2 onward: Full note rate applies
✅Why Would a Seller OƯer a Buydown Instead of Reducing Price?
🔹 A price cut often only reduces monthly payments by a few dollars
🔹 A buydown can save hundreds per month, increasing aƯordability
🔹 Keeps appraised values higher—preserving neighborhood comps
🔹 Attracts a larger buyer pool, especially in higher-rate markets
➤ Example: A $10,000 price cut might lower a payment by ~$60/month
➤ That same $10,000 used as a 2-1 buydown could save $600+/month in Year 1
✅ Who Can Pay for a Buydown?
🔹Sellers via concessions
🔹Builders as buyer incentives
🔹Buyers (less common, but strategic for investors focused on early cash flow)
✅ Are There Tax Benefits?
🔹 If you (the buyer) pay the buydown: may be considered prepaid interest and
potentially deductible (check with a CPA)
🔹 If funded via seller-paid concession: the IRS generally treats it as if the buyer paid it
themselves—so yes, still potentially deductible
🔹 For investment properties: buydown costs are typically amortized or expensed as a
loan-related financing cost
➤ Always consult a licensed tax professional to confirm how this applies to your specific
case.
✅ Buyer Benefits
🔹Lower initial payments—free up cash in early years
🔹Increased aƯordability—budget more comfortably
🔹Cash flow help on rentals—oƯset early losses while rents increase
🔹Refinance flexibility—if rates drop, you can refinance before full rate kicks in
➤ The loan is still qualified at the full note rate—this protects both you and the lender
📘 Example Buydown Calculation (2-1 Buydown)
Let’s say:
➤ Loan Amount: $500,000
➤ Note Rate: 7.00%
➤ Year 1 Rate: 5.00%
➤ Year 2 Rate: 6.00%
Monthly P&I at 7.00%: $3,327
➤ Year 1 at 5.00%: $2,684 → Saves $643/month
➤ Year 2 at 6.00%: $2,998 → Saves $329/month
Total buydown cost held in escrow:
➤ Year 1: $643 × 12 = $7,716
➤ Year 2: $329 × 12 = $3,948
➤ Total = $11,664 paid upfront by seller, builder, or buyer
✅ Work With Experts Who Know the Game
At Integrity Capital, we operate lean—low margins, low overhead, and modern tech that
keeps your rates low and your options wide.
📞Reach out today to see if a temporary buydown makes sense in your mortgage strategy.
