How 2-1 Buydowns Work for Salem Buyers

Wish your first couple of years of mortgage payments were a few hundred dollars lower without changing the price you offer? For many Salem buyers, a temporary buydown can do exactly that. If you are watching rates and trying to make the numbers work, you are not alone. In this guide, you’ll learn how 2-1 and 1-0 buydowns work, who typically pays, what they cost, and when to consider them versus paying points for a permanent rate reduction. Let’s dive in.

2-1 buydown basics

A temporary buydown lowers your interest rate and monthly principal-and-interest payment for a short time at the start of your loan. With a 2-1 buydown, your rate is 2 percentage points lower in year 1, 1 point lower in year 2, and then it returns to the full note rate in year 3 and beyond. A 1-0 buydown lowers your rate by 1 point for year 1, then it goes back up.

Behind the scenes, a one-time deposit is made at closing into a buydown escrow account. That deposit covers the difference between the payment at your full note rate and the reduced payment during the buydown period. The deposit can come from a seller, builder, lender, or the buyer.

Who pays and key rules

In Salem, it’s common for sellers or builders to fund a temporary buydown to help buyers with affordability. Some lenders also run promotions that include buydown funds. Buyers can choose to pay the buydown themselves at closing if it suits their plan.

Most lenders qualify you at the full note rate, not the temporarily reduced rate, unless the specific program allows otherwise. Loan programs set limits on seller contributions and require documentation of the buydown on your closing paperwork. Always have your lender confirm, in writing, how you will be qualified and that the buydown is permitted under your loan type.

Real numbers for Salem buyers

Below are simple examples to show the potential monthly impact. These are illustrative only.

Assumptions:

• 30-year fixed mortgage
• Example note rate: 6.75%
• 2-1 buydown: 4.75% in year 1, 5.75% in year 2, then 6.75%
• 20% down payment
• Principal and interest only (taxes, insurance, HOA not included)

Entry example: $375,000 purchase (loan $300,000)

• Year 1 at 4.75%: about $1,565 per month
• Year 2 at 5.75%: about $1,751 per month
• Year 3+ at 6.75%: about $1,947 per month
• Savings vs. note rate:
  • Year 1: about $382 per month, about $4,584 for the year
  • Year 2: about $196 per month, about $2,352 for the year
  • Total two-year savings: about $6,936

Typical example: $475,000 purchase (loan $380,000)

• Year 1 at 4.75%: about $1,982 per month
• Year 2 at 5.75%: about $2,219 per month
• Year 3+ at 6.75%: about $2,466 per month
• Savings vs. note rate:
  • Year 1: about $484 per month, about $5,808 for the year
  • Year 2: about $247 per month, about $2,964 for the year
  • Total two-year savings: about $8,772

Higher price example: $625,000 purchase (loan $500,000)

• Year 1 at 4.75%: about $2,608 per month
• Year 2 at 5.75%: about $2,918 per month
• Year 3+ at 6.75%: about $3,246 per month
• Savings vs. note rate:
  • Year 1: about $638 per month, about $7,656 for the year
  • Year 2: about $328 per month, about $3,936 for the year
  • Total two-year savings: about $11,592

Note: The seller’s actual buydown deposit is typically less than the sum of those savings. It is a single upfront amount calculated by the lender based on the loan terms and time value of money.

What the buydown costs

The exact one-time deposit is calculated by the lender to fund the reduced payments for the buydown period. It depends on your loan amount, the note rate, the temporary rate schedule, and investor rules. Because the deposit is paid upfront and because part of every payment is principal, the deposit is usually less than the total cash-flow savings you experience in years 1 and 2.

If you, as the buyer, choose to pay for the buydown, the tax treatment can differ from points used to permanently reduce your rate. It is smart to ask a tax professional how buyer-paid fees may be treated for your situation.

Temporary vs. permanent buydown

A temporary buydown focuses on short-term payment relief. Paying discount points is a permanent rate reduction for the life of the loan. Each has a place.

Consider a temporary 2-1 or 1-0 if:

• Short-term affordability is your main goal.
• You expect to refinance within a few years or your income is likely to rise.
• A seller or builder is willing to fund the buydown as part of your offer terms.

Consider paying points for a permanent buydown if:

• You expect to keep the loan long enough to break even and benefit from lower payments over time.
• You think rates will stay the same or rise.
• You have extra cash at closing and want lasting interest savings.

Quick comparison:

• Temporary buydown: lowers payments for 1–2 years, then payment resets to the note rate.
• Permanent points: lower the interest rate for the full term; run a break-even analysis with your lender.

How to use a buydown in Salem

• Get a lender quote that shows your note rate, the temporary buydown rates, monthly payments, and the required deposit.
• Confirm in writing how the lender will qualify you. Most qualify at the note rate.
• Check seller concession limits for your loan type and confirm a seller-funded buydown is allowed.
• If you are deciding between temporary and permanent buydowns, have your lender calculate the break-even timeline.
• Ask how the escrowed buydown funds are managed and how your payment adjusts after the buydown ends.
• If you pay the fee yourself, ask a tax professional about deductibility.

Local tips for Salem buyers

Salem’s location near the Massachusetts border attracts commuters who watch monthly costs closely. Small payment differences can influence commuting choices and comfort in the first years of ownership. In negotiations, a seller-funded buydown can be an alternative to a price cut and may help you meet your monthly budget while preserving the seller’s contract price. For new construction, some builders offer structured buydown incentives, so ask whether the builder or lender supplies the funds.

If you want to explore a 2-1 or 1-0 buydown on a Salem home, we can help you model options and negotiate the structure with your lender and the seller.

Ready to explore homes and financing strategies in Salem and nearby towns? Reach out to the team that pairs local knowledge with a clear plan. Connect with Key Team | Compass to get started.

FAQs

What is a 2-1 buydown on a mortgage?

• It is a temporary subsidy that drops your interest rate by 2 points in year 1 and 1 point in year 2, then returns to the full note rate in year 3 and beyond.

Who can pay for a temporary buydown in NH?

• The seller, builder, lender, or the buyer can fund it, subject to loan program rules, seller concession limits, and full documentation on your closing statements.

How will a lender qualify me if I use a buydown?

• Many lenders qualify you using the full note rate payment, not the reduced payment, unless the program allows otherwise, so get the policy in writing.

Are taxes and insurance included in the payment savings?

• The examples here show principal and interest only; taxes, insurance, and HOA fees are separate and will affect your total monthly payment.

When is a permanent buydown better than a 2-1?

• If you plan to keep the loan long enough to break even on the upfront points and want ongoing savings, a permanent buydown can make more sense.

What happens after the buydown period ends?

• Your payment automatically adjusts to the note rate amount, and the lender services the escrowed subsidy according to the loan’s buydown agreement; ask your lender for the exact schedule.