When Should a Seller Buy Down the Interest Rate for a Buyer?
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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 a child can’t reach an apple on a tree, do you lower the branch or give them a step stool? This is the concept behind the question, “When should a home seller buy down the interest rate for a potential buyer?”
High interest rates have left many buyers stretching to afford today’s monthly mortgage payments. To close a deal, you might receive a request to lower your asking price. However, a seller-paid rate buydown can give buyers a step up by reducing their monthly payments, which can allow you to walk away with more proceeds.
To help you decide if this tactic is right for your situation, we spoke with Claire Paris, a top Portland real estate agent with more than 23 years of experience. She says a well-structured buydown offer can make a difference.
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.
How does a seller-paid rate buydown work?
In a seller-paid mortgage rate buydown, you offer to cover some of the buyer’s loan costs to lower their interest rate. This helps reduce the buyer’s monthly payment, which can be a big incentive in today’s market where affordability is tight.
Paris explains that there are two types of rate buydowns: temporary and permanent.
“Most people, when they think of a buydown, think of a permanent buydown, which we call ‘paying points.’ A seller-paid temporary buydown is where the seller pays money to the lender upfront, and it artificially lowers the buyer’s interest rate and payment for some defined period of time.”
Permanent buydowns, where a lower interest rate is secured for the entire loan term, are more commonly associated with offers from builders and lenders. So, for the sake of this post, we’ll focus on seller-paid temporary rate buydowns.
When should a seller offer to buy down the interest rate?
Paris says seller-paid rate buydowns can be effective, but they’re not one-size-fits-all. They tend to work best when affordability is the main hurdle for buyers — and you’re trying to compete without slashing your price.
“It’s often something that agents are going to talk about, especially if the buyer’s agent says something like, ‘Oh, my clients love the home, but their monthly payment is just too high.’ That’s when I would say, ‘Well, have you looked at a temporary rate buydown?’ That could help get the payment to a level that the buyers could be comfortable with.”
Consider offering a rate buydown if:
- Your home has been listed longer than average. If showings have slowed or offers aren’t coming, a buydown may renew interest.
- Buyers are hesitant due to high monthly payments. If you’re getting feedback about affordability, a lower rate might be the key motivator.
- You’re competing against new construction. Builders often use buydowns to close deals, and you can do the same to stay competitive.
- You’re in a slower market. If inventory is high and buyer activity is low, incentives can help you stand out.
Pro tip: A buydown offer works best when the buyer is close to qualifying for a loan and just needs a slight boost to feel confident in the purchase.
Examples of seller-paid temporary buydowns and costs
“You can get a rate buydown that’s one year, two years, or three years, and of course, that corresponds to different levels of cost,” Paris explains. “But instead of lowering your home’s price, it’s a great way to affect the buyer’s monthly payment in a way you couldn’t otherwise.”
Below are the four most common seller-paid temporary buydown offers and cost examples based on a buyer with a 30-year, $400,000 loan using a 6.5% base interest rate.
1-0 buydown
The seller covers a 1% reduction in the buyer’s mortgage rate for the first year of the loan. After that, the rate adjusts to the full note rate for the remaining term. This option is often the least expensive for the seller and still gives the buyer a modest break in their first year of ownership.
| Year | Rate | Monthly payment | Monthly savings | Annual savings |
| 1 | 5.50% | $2,269 | $257 | $3,086 |
| 2 | 6.50% | $2,526 | $0.00 | $0.00 |
Seller’s buydown total cost: $3,086
1-1 buydown
With this structure, the buyer’s mortgage rate is reduced by 1% in the first year and 1% in the second year before returning to the full note rate in year three. It offers moderate but steady savings during the early years of the loan and can be a good middle-ground option for sellers who want to offer an incentive without committing to a more expensive buydown strategy.
| Year | Rate | Monthly payment | Monthly savings | Annual savings |
| 1 | 5.50% | $2,269 | $257 | $3,086 |
| 2 | 5.50% | $2,269 | $257 | $3,086 |
| 3 | 6.50% | $2,526 | $0.00 | $0.00 |
Seller’s buydown total cost: $6,172
2-1 buydown
With this structure, the buyer’s rate is reduced by 2% in year one and 1% in year two before adjusting to the full rate in year three and beyond. This is a popular choice in resale transactions because it offers noticeable savings upfront, often enough to sway cost-sensitive buyers without significantly cutting into your proceeds.
| Year | Rate | Monthly payment | Monthly savings | Annual savings |
| 1 | 4.50% | $2,025 | $502 | $6,024 |
| 2 | 5.50% | $2,269 | $257 | $3,084 |
| 3 | 6.50% | $2,526 | $0.00 | $0.00 |
Seller’s buydown total cost: $9,108
3-2-1 buydown
This option lowers the buyer’s interest rate by 3% in the first year, 2% in the second year, and 1% in the third year before settling at the permanent rate in year four. It offers the most substantial initial savings, but also requires the largest seller concession. For that reason, it’s more commonly seen in new construction or higher-priced homes with more room to negotiate.
| Year | Rate | Monthly payment | Monthly savings | Annual savings |
| 1 | 3.50% | $1,794 | $732 | $8,784 |
| 2 | 4.50% | $2,025 | $502 | $6,024 |
| 3 | 5.50% | $2,269 | $257 | $3,084 |
| 4 | 6.50% | $2,526 | $0.00 | $0.00 |
Seller’s buydown total cost: $17,892
Editor’s note: While this post is about seller-paid rate buydowns, the buydown cost estimates above can be paid for by the buyer, lender, or a third party. Some lenders limit interested party contributions (IPCs), setting maximum amounts based on loan-to-value ratios.
If you’re curious how much a buydown offer might cost you, many lenders provide online buydown rate calculators that allow you to enter a buydown type, loan term, loan amount, and interest rate.
This strategy is negotiated as part of the purchase contract, and the lender must approve the structure. In most cases, the buydown is funded using seller concessions, meaning it comes out of your net proceeds at closing.
Rate buydown offer vs. lowering home price
Let’s return to our opening metaphor of whether it’s best to lower the tree branch or offer the buyer a step stool so they can reach the prize. Is it better to offer a rate buydown or simply reduce your asking price?
While both approaches can help close the deal, they affect buyers — and your bottom line — differently.
- A price reduction lowers the total purchase price, which slightly reduces the buyer’s monthly payment and upfront cash needed for a down payment.
- A rate buydown directly reduces the buyer’s monthly mortgage payment, often by a greater amount, especially in the early years of the loan.
Paris says offering a rate buydown could be a win-win if the buyer needs that step up to qualify for the home, and you’re looking to retain proceeds rather than drop your price.
“For every $10,000 that you lower the price, it affects the buyer’s monthly payment by about $120,” she estimates. “A rate buydown is going to affect the payment significantly more than that, but it’s temporary.”
Let’s compare lowering your home’s price by $20,000 to using a 2-1 buydown as a buyer incentive. For this example, we’ll stay close to our $400,000 loan scenario above and still use a 6.5% base interest rate. (To keep it simple, we’re excluding other expenses like taxes, home insurance, and PMI).
Option A: Lowering your home’s asking price
- Your buyer agrees to purchase your home for $420,000 with a 5% down payment.
- This results in a $399,000 mortgage loan and a monthly payment of $2,521.
- The payment is higher than your buyer’s approved amount. Since you don’t have other offers, you agree to drop your asking price by $20,000 to keep the deal moving.
- Assuming the same 5% down payment, this lowers your buyer’s loan to $380,000, giving them a monthly payment of $2,401, which is within their lender-approved range.
Result: Your price reduction offer reduces your sale proceeds by $20,000.
Option B: Offering your buyer a 2-1 buydown credit
- You stay firm on your $420,000 asking price but offer a seller-paid 2-1 buydown.
- Your buyer stays with their $399,000 mortgage loan with 5% down.
- You offer a credit of around $9,000 from your proceeds to reduce the buyer’s rate for the first two years. This saves the buyer around $500 a month in the first year, and about $250 a month in the second year.
Result: Your 2-1 buydown offer lets you keep nearly $11,000 more in sale proceeds.
“The temporary buydown is way more effective than paying points, but sellers are not really advertising it,” Paris says. “In most cases, buyers are asking for it, and then sellers are accommodating in lieu of reducing the price.”
Alternative seller concession offers
A rate buydown isn’t the only way to motivate a buyer. Depending on your local market conditions, buyer needs, and what your lender allows, you may consider offering other types of concessions as part of the deal.
Here are a few alternatives sellers might offer instead of (or alongside) a buydown:
- Closing cost credits: Covering a portion of the buyer’s closing costs, such as appraisal fees, title insurance, or escrow fees, can reduce the cash they need to bring to closing.
- Home warranty: Offering a one-year home warranty can ease concerns about future repair costs.
- Repair credits: Instead of fixing inspection items yourself, you can offer a credit so the buyer can handle repairs after closing.
- Offer flexible move-in timing: If your buyer needs additional time to close or move their family into the home, offering flexible terms can make the deal more attractive.
- Offer to pay the buyer’s agent fee: Following a court settlement that changed commission rules, sellers are no longer automatically expected to pay the buyer’s agent fee. However, many still choose to cover this cost to help close a deal.
“The rate buydowns are super effective, but we’re seeing many sellers covering the buyer’s agent fees,” Paris says. “We’re also seeing just straight closing cost payments — so the seller can pay the buyer’s prepaids and closing costs up to a certain limit, and that minimizes the cash out of pocket for the buyer at closing.”
Ultimately, the right concession will depend on what buyers in your area value most — and what you can afford to give.
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A top agent will know if a buydown is right for you
The effectiveness of a seller-paid rate buydown strategy depends on your local market conditions, buyer demand, and how your home is positioned. That’s where working with an experienced real estate agent can make all the difference.
Paris offers these closing thoughts for home sellers in a slow market:
- “Staging matters a lot, and price matters a lot. I’ve seen even just a small price reduction make a big difference in the number of showings we get and, ultimately, the number of offers we receive. Even a $10,000 price reduction can make a huge difference.”
- “Another thing we’re finding helpful is redoing listing photos — just making sure everything looks perfect — because buyers today are a lot more picky and have a much harder time picturing themselves living in a home.”
- “Take a second look at your listing description. Review it carefully. Look at the write-up and make sure it really highlights the lifestyle that buyers can expect in that home.”
- “If all of the marketing is top-notch [and you’re still not getting traction], then you may have to reduce the price.”
Through HomeLight’s free Agent Match platform, you can connect with top-performing agents in your area who understand how and when to use a buydown offer strategically. These agents are backed by real transaction data — not just reviews — so you can feel confident in their ability to guide your sale.
Editor’s note: The buyer rate and seller cost examples we’ve provided are for educational purposes. Your costs can vary. Buydown options may not be available under some federal or state loan programs or from all lenders.
Header Image Source: (stetsik / Deposit Photos)
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