Calculate 2/1 mortgage buydown payments and subsidy from loan amount, note rate, and term, with a credit check for available buydown funds.

2/1 Buydown Calculator

Enter note-rate loan details to estimate 2/1 buydown payments and subsidy.

Standard 2/1
Credit check
Enter a loan amount greater than 0.
Enter a rate of 0 or greater.
Enter a term greater than 0.
Enter a loan amount greater than 0.
Enter a rate of 0 or greater.
Enter a term greater than 0.
Enter a credit amount of 0 or greater.

Results

Estimated 2-year buydown subsidy $0.00
Year 1 rate
0.000%
Year 1 payment
$0.00
Year 2 rate
0.000%
Year 2 payment
$0.00
Year 3+ note-rate payment
$0.00
First-month payment reduction
$0.00
Principal and interest only. Taxes, insurance, HOA dues, mortgage insurance, and closing costs are not included.
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2/1 Buydown Formula

The standard fixed-rate monthly principal-and-interest payment formula is:

Payment = P × i × (1 + i)^N / ((1 + i)^N − 1), where i = (APR/100)/12 and N is the total number of monthly payments.

For a 2/1 temporary buydown, the Year 1 payment is calculated using an APR that is 2 percentage points below the note rate, the Year 2 payment uses an APR that is 1 percentage point below the note rate, and the Year 3+ payment uses the note rate (all calculated over the original term N). The estimated buydown subsidy for the first two years is (Note Payment − Year 1 Payment) × 12 + (Note Payment − Year 2 Payment) × 12 (adjusted if the loan term is shorter than 24 months).

Variables:

  • P is the principal loan amount
  • APR is the annual interest rate (as a percentage, e.g., 6 for 6%)
  • i is the monthly interest rate (APR/100/12)
  • N is the total number of monthly payments (e.g., 360)

What is a 2/1 Buydown?

A 2/1 buydown (more precisely, a 2/1 temporary buydown) is a mortgage pricing arrangement that reduces the borrower’s required monthly principal-and-interest payment for the first two years. The reduced payments are commonly calculated as if the interest rate were 2 percentage points lower in Year 1 and 1 percentage point lower in Year 2 compared with the loan’s note (final) interest rate. The note rate itself is typically fixed and does not “adjust” because of the buydown; instead, the payment reduction is usually covered by funds paid at closing (often by the seller or builder) and held in a buydown escrow. After the first two years, the borrower’s payment steps up to the regular payment based on the note rate for the remainder of the term.

How to Calculate 2/1 Buydown?

The following steps outline how to calculate a 2/1 temporary buydown (principal-and-interest only).

  1. Determine the loan amount (principal), the note (final) interest rate (APR), and the total loan term in months (N).
  2. Compute the Year 1 buydown rate as (note APR − 2 percentage points) and the Year 2 buydown rate as (note APR − 1 percentage point). If either result is below 0%, use 0%.
  3. Use the standard mortgage payment formula to calculate three payments (over the same total term N): one using the Year 1 rate, one using the Year 2 rate, and one using the note rate (Year 3+).
  4. Estimate the buydown subsidy needed by summing the monthly differences between the note-rate payment and the reduced payments over the first 12 months (Year 1) and next 12 months (Year 2).

Example Problem :

Use the following variables as an example problem to test your knowledge.

principal loan amount ($) = 300,000

note (final) interest rate (APR %) = 6.0

total number of monthly payments (N) = 360

calculated monthly payment at note rate (Year 3+) ($) ≈ 1798.65

calculated monthly payment in Year 1 at (APR − 2 points) = 4.0% ($) ≈ 1432.25

calculated monthly payment in Year 2 at (APR − 1 point) = 5.0% ($) ≈ 1610.46

estimated total buydown subsidy for first 2 years ($) ≈ (1798.65 − 1432.25)×12 + (1798.65 − 1610.46)×12 ≈ 6655.08