Permanent Buydown vs Temporary Buydown Mortgage 2026: What Actually Makes Sense

Buydowns became a central tool in the 2022-2024 rate environment when sellers and builders funded them as a purchase incentive. Understanding when each type works is an important part of purchase origination in 2026.

Permanent Buydown (Points)

Paying discount points at closing reduces the note rate for the life of the loan. One point equals 1% of the loan amount and typically buys 0.25% in rate reduction (this ratio varies by lender and market conditions). The breakeven period is the number of months until the monthly savings pay back the upfront cost. At a typical ratio, one point on a $400,000 loan costs $4,000 and saves roughly $70/month -- a breakeven of about 57 months. If the borrower expects to hold the loan for longer than that, points make economic sense.

Temporary Buydown (2-1, 3-2-1)

A 2-1 buydown reduces the rate by 2% in year one and 1% in year two before resetting to the note rate in year three. A 3-2-1 buydown reduces by 3%, 2%, then 1% over three years. The funds are typically deposited into an escrow account that subsidizes the difference. The borrower qualifies at the note rate, not the reduced start rate.

When Each Makes Sense

• ✦Permanent buydown: Long-term hold (5+ years), rate-sensitive borrower, refinance unlikely in the near term.
• ✦Temporary buydown: Borrower anticipates income growth in early years, refinance likely before the full note rate kicks in, seller-funded incentive where the cost is born by the seller, not the buyer.