A Seller’s Guide to Buying Down the Interest Rate for Buyers
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Richard Haddad Executive EditorClose
Richard Haddad Executive EditorRichard Haddad is the executive editor of HomeLight.com. He works with an experienced content team that oversees the company’s blog featuring in-depth articles about the home buying and selling process, homeownership news, home care and design tips, and related real estate trends. Previously, he served as an editor and content producer for World Company, Gannett, and Western News & Info, where he also served as news director and director of internet operations.
If you’re finding it difficult to sell your home in the current market, buying down the interest rate for buyers may be a solution. By helping reduce the buyer’s loan rate — at least temporarily — you can make your property more attractive without lowering your asking price.
With insights from a top expert, this guide will show you how seller-paid buydowns work, how much it may cost you, and when it makes sense to consider offering this concession to close a deal.
Ask a Top Agent if You Should Offer a Rate Buydown
Sellers can often retain more proceeds by offering a buyer an interest rate buydown rather than lowering their home’s sale price. A top agent can determine which strategy is best for your situation. Our free Agent Match tool analyzes over 27 million transactions and thousands of reviews to find you a trusted, experienced local agent.
What is a seller-paid interest rate buydown?
“In simple terms, a seller-paid interest rate buydown is when the seller contributes funds to lower the buyer’s mortgage rate, which results in lower monthly payments for the buyer,” says Denise Madan, a Miami-based HomeLight Elite agent with 26 years of experience helping sellers.
This strategy can be especially effective in a slower market where buyers are feeling stretched by high rates and prices. Instead of lowering your home’s sale price, which can reduce your net proceeds, you’re offering a benefit that directly addresses buyers’ monthly payment concerns, especially in the early years of the loan.
How does buying down the interest rate work?
When a buyer pays for an interest rate buydown on their own mortgage loan, the upfront discount points each typically cost 1% of the loan amount and can lower the rate by a fraction of a percentage, usually about .25%. However, when a seller offers a buydown as a buyer incentive, it’s typically in the form of a credit at closing.
The funds you contribute as a seller are used to subsidize the difference between the original interest rate and the reduced rate during the buydown period. Lenders typically require that this money be placed in an escrow account to cover the buyer’s adjusted payments. (We’ll illustrate this in a minute.)
Temporary and permanent rate buydowns
A rate buydown can be structured in two main ways: temporary or permanent. Both approaches lower the interest rate but differ in how long the reduced rate lasts and how much the buydown costs.
“A temporary buydown reduces the interest rate for the first couple of years before it returns to the original rate,” Madan explains. “There is a 2-1 buydown, which means the interest rate is reduced by 2% in the first year and 1% in the second year.”
2-1 buydown interest rate example:
- Year 1 rate: 4.5% (buyer pays a lower monthly payment)
- Year 2 rate: 5.5% (buyer pays a slightly higher monthly payment)
- Year 3 rate: 6.5% (buyer pays a monthly payment based on the original rate)
Madan says temporary buydowns are more typical in buyer-seller negotiations. “In my experience, I haven’t seen sellers offer permanent buydowns.” (This is more commonly offered by homebuilders.)
Compare: Reducing home price vs. a 2-1 buydown
Home sellers feeling stuck in a slow, high-interest-rate market may be tempted to lower their asking price, thinking this is the only way to attract offers. Let’s take a look at how lowering your home’s price might compare with using a 2-1 buydown as a buyer incentive.
Option A: Reducing your home’s price
1. Your buyer agrees to a sale price of $420,000 with a 5% down payment.
2. This results in a $399,000 loan and a monthly payment of $2,522 on a 30-year fixed-rate mortgage (assuming a 6.5% mortgage rate and excluding taxes, home insurance, and PMI).
3. The monthly payment is slightly higher than your buyer’s pre-approval amount. If you don’t have other offers, you drop your asking price by $20,000.
4. Assuming the same 5% down payment, this reduces the buyer’s loan to $380,000, giving them a mortgage payment of $2,402, which is within your buyer’s approved range.
»Result: Your price reduction strategy reduces your proceeds by $20,000.
Option B: Offering your buyer a 2-1 buydown credit
1. You keep the original $420,000 asking price but offer your buyer a 2-1 buydown.
2. The buyer maintains a $399,000 loan with 5% down.
3. You pay a credit of around $8,500 from your proceeds to reduce the buyer’s rate for the first two years.
»Result: Your 2-1 buydown strategy lets you keep $11,500 more in proceeds.
How this cost is calculated:
- The cost of a 2-1 buydown is the difference between what the buyer would pay at the standard interest rate and what they’ll pay at the reduced rate over the first two years.
- Year 1 payment at 4.5% interest = $2,022/month
- Year 2 payment at 5.5% interest = $2,265/month
- Standard payment (years 3–30) at 6.5% interest = $2,522/month
Savings for the buyer (and your cost as seller):
- Year 1: ($2,522 – $2,022) × 12 = $6,000
- Year 2: ($2,522 – $2,265) × 12 = $3,084
- Total cost of buydown = $6,000 + $3,084 = $9,084*
*In practice, lenders may offer slightly discounted escrow buydown programs, so your estimated cost as a seller might land around $8,500, depending on the lender.
Our 2-1 seller-paid buydown example represents a win-win scenario. The buyer gets a mortgage payment they can afford when they need it most, and you only give up $8,500 as a seller credit rather than lowering your home price by $20,000.
“There is also something longer called a 3-2-1 buydown, which means the buyer’s interest rate is reduced by 3%, then 2%, and then 1%,” Madan says.
How much will a rate buydown offer cost?
The cost of buying down an interest rate for a buyer depends on what you offer. Key factors include:
- The buyer’s loan amount: The higher the loan, the higher your buydown costs.
- Current interest rates: These determine how much a buyer is saving each month.
- Buydown term: The longer the buydown period, the more funding credit you’ll need to provide at closing.
- Type of buydown: A temporary buydown vs. a permanent buydown.
- The buyer’s lender policies: Lenders have different buydown programs and fees.
While any combination of these factors can be at play, in general, you can expect to pay between 2% and 3% of the buyer’s loan amount for a temporary buydown.
For example, if the buyer’s mortgage is $400,000, a seller-paid 2-1 buydown might cost between $8,000 and $12,000.
How Much Is Your Home Worth Now?
Home values have rapidly increased in recent years. How much is your current home worth now? Get a ballpark estimate from HomeLight’s free Home Value Estimator.
When is buying down the interest rate a good option?
Madan says offering a seller-paid rate buydown can be a smart move if your home has been sitting on the market without serious offers or “if the buyer loves your home but they want (or need) a lower monthly mortgage payment.”
It can also be especially effective in:
- High interest rate environments: Like the one we’re in now, where buyers are waiting for rates to drop before purchasing.
- Competitive price points: Where your home is similar to others in the area, and you want a standout incentive.
- Buyer-first-time or budget-conscious segments: These buyers may be willing to move forward if the initial payments are more manageable.
- Homes that don’t need a price cut: A buydown might help you preserve your sale price while still sweetening the deal.
A 2-1 or 3-2-1 buydown is most effective when buyers are confident their financial situation will improve soon, such as getting a promotion or paying off other debt. As Madan points out, “A buydown can be helpful if the buyer believes their income is going to increase in the next year or two. It gives them a little breathing room [on the monthly payment].”
What other concessions can a seller consider?
A rate buydown is just one of several seller-paid incentives that can help you get a deal across the finish line — especially when buyers are on the fence.
Depending on your situation, you might also consider:
- Covering closing costs: Offering to pay a portion (or all) of the buyer’s closing costs can ease their upfront financial burden and make your listing stand out.
- Offering repair credits: Instead of making repairs yourself, you can offer a credit at closing so buyers can handle the work after move-in.
- Including home warranties: A one-year home warranty offers buyers peace of mind and can be a relatively low-cost way to sweeten the deal.
- Being flexible on move-in timing: If your buyer needs extra time to close or move in, offering flexible terms can make your property more attractive.
“These are good standard concessions,” Madan says. “We recently closed on a property in which our seller offered to remove all the carpeting in the home and install new vinyl flooring before closing. They let the buyer pick out the color of the flooring. It was enough to get us under contract after being on the market for four months.”
She adds, “The house was only three years old — like a brand new home, but it took this out-of-the-box approach to get an offer.”
More expert tips to sell in a slow market
In a slow market where buyers are hesitant, Madan says the key is to combine smart incentives with proven fundamentals. “Price the home to sell. Be realistic about your price. Be patient. Be open-minded to possibilities and what buyers might introduce as an offer.”
She advises all her clients to apply the time-tested power of curb appeal and first impressions.
“Make your home as attractive as you can — from the moment a potential buyer drives up to your front door and walks through your home. Try to see your home as a buyer seeing it for the first time. Does your driveway look nice? Could your home use a fresh coat of paint? Put your best foot forward and make your home as beautiful as you can.”
Here are more selling tips used by top agents like Madan:
- Don’t overprice with the idea of negotiating down later
- Stage your home or keep it show-ready
- Use professional photos and virtual tours
- Make the right repairs (your agent can guide you)
- Allow flexible showing times
- Showcase unique property features
- Get a pre-listing home inspection
- Market the home across multiple platforms
Above all, for the best chances of success, Madan recommends, “Hire an experienced Realtor who knows their numbers.”
Find a top agent to evaluate offering a rate buydown
A seller-paid buydown isn’t the solution for every listing — but in the right scenario, it can help you sell faster and walk away with more money than a steep price cut. The key is knowing when and how to offer it.
“I like to look at every deal and feel like both sides are going to be happy with the buydown,” Madan says. “The buyer should be enticed by the buydown offer, and the seller should be happy because they’re selling their home faster and not having to wait for a more qualified buyer.”
A top agent can help you:
- Compare the financial impact of a buydown vs. a price reduction
- Estimate what the cost of a buydown would be on your home
- Market the incentive effectively to attract buyers
- Structure the offer to fit lender requirements
HomeLight’s free Agent Match tool analyzes millions of real estate transactions and thousands of reviews to connect you with top local agents who understand your market and how to use an interest rate buydown in your favor.
Closing pro tip: If the slow market is holding up your moving and next-home buying plans, check out HomeLight’s innovative Buy Before You Sell program. See this short video to learn more.
Editor’s note: The examples we’ve provided in this post are for educational purposes. Your seller costs can vary. Buydown options may not be available under some federal or state mortgage programs or from all lenders. Lenders also may set limits on the amount a seller can cover for a buyer.
Header Image Source: (isaaclee1112/ Depositphotos)
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