Temporary Buy Downs: A Solution for High Mortgage Rates and Payments

If you’re struggling with high interest rates and rising home prices, you might be feeling stuck in a tough situation. But what if there was a way to ease that financial burden for the first couple of years? A temporary buy down could be exactly what you need.

In this post, we’ll break down what a temporary buy down is, how it works, and why it could be the right solution for you.

What Is a Temporary Buy Down?

A temporary buy down is a way to lower your mortgage interest rate for the first few years. Unlike an adjustable-rate mortgage (ARM) or teaser rate, this option locks in your rate while reducing your payments for a limited time.

Let’s say you locked in a 7% interest rate for your mortgage. With a two-one buy down, the first year’s payment would be based on a 5% rate, saving you money each month. The second year, you’d pay as if the rate were 6%. After that, you’d return to your original 7% rate.

How does this work? 

The difference in payments between the original rate and your temporary rate is set aside in an escrow account. Each month, that money is pulled from the escrow account to make up the difference between your actual payment and the lower payment for the first two years.

Real-World Example: What a Temporary Buy Down Looks Like

Let’s take a $400,000 loan with a 7% interest rate. Your normal monthly payment would be $2,661. But with a temporary buy down, your payments could look like this:

• Year 1 (5% rate): Your payment drops to $2,147, saving you over $500 a month.

• Year 2 (6% rate): Your payment would be $2,398, saving you about $250 a month.

In this scenario, the total amount needed for the seller to fund the buy down would be a little over $9,000. The seller would provide this amount, which is then placed in an escrow account to offset your lower monthly payments.

How to Pay for a Temporary Buy Down

Typically, the seller covers the cost of the buy down as part of the closing costs. It could also be paid for by the lender or Realtor, but the seller is usually the one contributing. This could be a great option for sellers in markets where the dynamics are shifting from a seller’s market to a buyer’s market. Sellers might be more willing to offer this type of relief instead of lowering the sale price of their home.

For example, let’s say a seller drops the price of their home by $10,000. This reduction would only save the buyer about $70 per month on their mortgage. But if the seller funds a temporary buy down, the savings can be much larger and more immediate.

A temporary buy down could save you hundreds of dollars each month without the seller needing to lower the price, making it a win-win.

When Does a Temporary Buy Down Make Sense?

You’ll want to consider a temporary buy down if you’re expecting a raise, plan to pay off a car loan, or think your financial situation will improve in the near future. If you’re anticipating a drop in mortgage rates, this could also be a good option, as it buys you time to refinance in the future.

However, keep in mind that the lender will qualify you based on the full payment (the 7% rate, in this example), not the lower rates during the first two years. So, be sure your budget can handle the increase in payments once the buy down ends.

Temporary Buy Down vs. Permanent Buy Down

One of the advantages of a temporary buy down over a permanent buy down is flexibility. If you decide to refinance before the buy down period ends, any remaining funds in the escrow account will be credited to your loan balance. This is a huge benefit because with a permanent buy down, any upfront money spent to reduce your rate would be lost if you refinance before it pays off.

A permanent buy down may seem like a good idea at first, but if you plan to refinance soon, the temporary buy down gives you the chance to save money without locking in a lower rate for the entire term of the loan.

When It Might Not Make Sense

If you’re planning to stay in the home for only a few years, a temporary buy down may not be the best option. If the seller isn’t offering a buy down, you can’t pay for it yourself at closing, which makes it less flexible in those situations.

Also, in a fast-moving market where homes are selling quickly, a seller may not be willing to negotiate on closing costs or offer a temporary buy down. But in slower markets, where homes sit on the market for 30–60 days, a temporary buy down could be a great negotiating tool.

FAQ: Temporary Buy Downs

What is a temporary buy down?

A temporary buy down is a mortgage strategy that lowers your interest rate for the first couple of years. For example, you could pay as if your rate were 5% for the first year and 6% for the second year, even though your locked rate is 7%. The difference is paid for by an escrow account funded by the seller.

How do I know if a temporary buy down is right for me?

A temporary buy down makes sense if you’re confident you’ll refinance or if you expect your financial situation to improve in the near future. It’s also a good option if you’re buying in a market where sellers are more willing to offer closing cost assistance.

Who pays for the temporary buy down?

In most cases, the seller will cover the cost of the temporary buy down as part of the closing costs. It could also be paid by the lender or Realtor, but the seller is typically the one funding it.

Wrapping Up

A temporary buy down isn’t a magic fix, but it can be a smart way to ease into homeownership when rates are high. If you’re feeling overwhelmed by the current market, a temporary buy down might be the financial relief you’re looking for. And as always, if you’re unsure whether it’s right for you, I’m here to help you make sense of your options.

Rebecca Richardson, “The Mortgage Mentor,” is a nationally ranked mortgage expert with over 20 years of experience helping clients navigate home financing with clarity and confidence. Known for her innovative, client-first approach, Rebecca specializes in custom mortgage solutions for veterans, investors, and buyers facing major life transitions. As a top-producing loan officer and sought-after educator, she’s a trusted voice in the mortgage industry and a go-to resource for mortgage advice nationwide.