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What is a 3-2-1 Temporary mortgage rate buydown?

Mortgage and Lending with Nexa Mortgage, NMLS #1660690 NMLS 217454


We’re expanding our Temporary Mortgage Rate Buydowns to help you receive even bigger savings of up to 3% off your initial rate. Choose from 3-2-1, 2-1, 1-1 and 1-0 buydowns, available immediately!

They’re available for conventional, FHA and VA borrowers who need a lower rate at the start of their loan — or additional money for expenses like furniture or upgrades.

What is a temporary buydown and how does it work?

Reader question. “We were talking to a mortgage broker via email and one thing he suggested was a 3-2-1 temporary mortgage rate buy down to help us obtain a lower interest rate. This term is not something I am familiar with. Before I return to him, I need to learn more about this term. Could you please explain in plain English how a 3-2-1 buydown works?

This subject can be complicated, so I will do my best to make it easy for you. You are doing the right thing by asking questions. This is one of the most important qualities a mortgage shopper could have. This is a great achievement!

Definition of the 3-2-1 Temporary buydown

By paying more cash upfront during closing, a mortgage buydown can reduce the interest rate of your loan. It’s basically a way to lower the long-term cost of your loan by paying more money at closing. But don’t be too worried about the extra cost.  You can ask the seller to cover this buydown for you in some cases.  It can definitely be a better option than reducing the sales price.  I can prepare an exact cost analysis for you once you have a house in mind.

There are two types: temporary and permanent. They are very similar.

  • Temporary buydown — This strategy lets you reduce your mortgage rate temporarily. This category includes the 3-2-1 buydown, the 2-1 buydown, and the 1-1 buydown, which generally works over a period of three years, 2 or 1 year respectively.
  • Permanent buydown – This is when the rate of your loan is reduced over its entire term. This is the best option in a long-term financing contract.  If you plan on moving or refinancing with in a short period of time, I wouldn’t suggest this.

This is how the 3-2-1 mortgage buydown works. To reduce the interest rate for the first three years, you pay a set amount at closing. The permanent rate will be 3% lower for the first year. It will be 2% lower than the note rate for the second year. It will also be 1% lower than the note rate for the third year.

Here’s an example.

Let’s suppose I apply for a mortgage loan and the lender says I am eligible for a 7.75% rate of interest based on my credit rating and other factors. Due to renovations I have to make to the house, I expect to incur additional costs in my first year. So, I would like to lower my mortgage payments in the first few years.

To achieve my short-term savings goal, I could use a 3-2-1 interim mortgage buydown. This would mean that I would have to pay a little more for my closing costs, or ask the seller to pay this for me. This would allow me to reduce my interest rate and, consequently, my monthly payments during years 1 through 3.

rate buydown

  • 4.75% interest for the first year (7.75% less by 3).
  • 5.75% interest in the second year (7.75% less by 2).
  • 4.75% interest in the third year (7.75% less by 1).
  • For the remaining term of the loan, 7.75% interest

In other words, the rate is being reduced by 3 percentage points in the first year (from 7.75% down to 4.75%). 2% for the second and 1% for the last year. Does that make sense?

The interest rate will return to the number that the lender had assigned at the time of the initial application and approval. In my case, it was 7.75% interest. The key is to ensure that you are not paying more to lower the rate than you will save over the first three years.


A temporary buydown is different from buying points, also known as discount points to reduce the interest rate in that when buyers buy points, the interest rate is bought down for the life of the loan. Temporary buydowns lower the rate during the initial buydown period.


A Temporary rate Buydown give buyers more flexibility and lower monthly payments. This will lower the interest rate for their initial loan. This is a great option, especially for those who are:

  • In the coming years, expect an increase in their income
  • Want to make use of seller concessions and take advantage of a fixed rate at a low price?
  • Are you looking to renovate, upgrade, or purchase furniture for your new home?
  • Are you moving from renting to purchasing and would like to make a lower monthly payment on your mortgage

Temporary Mortgage Rate Buydowns are available:

  • Conventional first and second homes purchased
  • Purchases of primary homes by FHA or VA

Select from these seller- and lender-paid Temporary Mortgage Rate Buydown options:

  • Buydown 3-2-1: A buydown of 3% in the first year and 2% in year two. 1% in year three is the lock rate.
  • Buydown 2-1: A buydown of 2 % in the first and 1 % in the second years, respectively. Then the rate will be locked at the original rate for the remainder of the term.
  • 1-1 Buydown: A buydown at 1% for the first two years and then at the original locked rate the third year. This is for the duration of your term.
  • 1-0 Buydown: A buydown at 1% for the first year and then back at the locked rate the second year. This is for the term.
  • The borrower must be able to pay the entire monthly payment before the buydown rate can be applied.
  • Seller concessions can be deposited in a lump sum to a buydown account for the seller-paid option. To reduce monthly payments, a portion of this amount is released each month.


  • Using a mortgage broker can save buyers more money In 2021, the average homebuyer who used an independent mortgage broker saved $9,407. *
  • These time-saving tools can help them get to the finish line faster. The Richard Woodward Mortgage Team is always innovating to speed up the loan process. This will allow our partners to get buyers into their new homes quicker with our exclusive tools.
    • Same-day loan approval
    • Conditions cleared in hours – Not days
    • Local Appraisal Pool hand-pick for the area
    • No Need for funding numbers to disperse funds at closing

*The principal, interest and MI payment on a $350,000 30-year Fixed-Rate Loan at 7.750% and 90% loan-to-value (LTV) is $2,603.69. The Annual Percentage Rate (APR) is 8.166% with estimated finance charges of $5,600. The principal and interest payments, which will continue for 360 months until paid in full, do not include taxes and home insurance premiums, which will result in a higher actual monthly payment. Rates current as of 11/15/22. Subject to borrower approval. Some exclusions may apply.

Comments (3)

George Souto
George Souto NMLS #65149 FHA, CHFA, VA Mortgages - Middletown, CT
Your Connecticut Mortgage Expert

Richard Woodward NMLS#217454 good job in explain what a temporary buydown is and does.

Nov 20, 2022 03:23 PM
John Pusa
Glendale, CA

Hello Richard Woodward NMLS#217454 very valuable detailed report for temporary mortgage rate buydown.

Nov 20, 2022 04:13 PM
Richard Weeks
Dallas, TX
REALTOR®, Broker
Great information, thanks for sharing.  I hope you have a great day.
Nov 21, 2022 02:56 AM