A builder's sign advertises a rate that looks nothing like what you have been reading about in the news, and the monthly payment on the model home feels good. Before you sign anything, it is worth knowing exactly what is being offered here (almost always a temporary discount, not a permanent one) and where the cost of that discount usually shows up.
Last reviewed September 1, 2026
A temporary buydown lowers your mortgage payment for a limited time, usually one to three years, in exchange for an up-front amount deposited into an escrow account at closing. The two most common structures are a “2-1” buydown, where your effective rate is 2 percentage points below the note rate in year one and 1 point below in year two, and a “3-2-1,” which steps down over three years. After that, your payment resets to the full note rate for the rest of the loan.
This is different from paying discount points, which permanently lowers your rate for the life of the loan. A builder promotion advertising “rates as low as X%” is describing the first year of a temporary buydown far more often than a permanent rate reduction. Read the offer carefully to see which one you are actually being shown.
The up-front deposit that funds a temporary buydown is typically paid by the seller, the builder or, occasionally, the lender as a negotiated concession, not by you directly. On a new-construction deal, that concession is a cost to the builder like any other, and builders price their homes to cover their costs. It is a fair question, not an accusatory one, to ask whether the dollar amount funding your buydown is layered on top of the home's price or whether the same dollars would be available to you as a straight price reduction instead.
Your payment does not jump all at once. It increases at each step of the buydown schedule until it reaches the full note-rate payment, which is what you are contractually obligated to pay for the remainder of the loan. Budget for that final payment from the start, not the introductory one. If the full payment would strain your budget, the buydown is masking that rather than solving it.
Ask the builder or lender for three numbers, in writing: the price of the home with the buydown removed, the price with a straight closing-cost or price credit of the same dollar amount instead, and the loan's APR (which reflects the true cost of the loan, not just the advertised year-one rate). Comparing those three side by side tells you what the incentive is actually worth to you. Comparing monthly payments alone does not.
A rate buy-down is real money, but it is temporary, and on a new-construction deal it is usually already priced into the home somewhere. Ask for the numbers with the incentive removed before deciding it is worth it.
Last reviewed September 1, 2026. Legal and financing information above is general education, not legal, tax or lending advice for your specific situation.
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