What is a builder rate buydown, and how is a 2-1 buydown different from paying points?

A temporary buydown lowers your interest rate for the first year or two, then it returns to the note rate. In a 2-1 buydown, your rate is 2 percentage points lower in year one and 1 point lower in year two before settling at the full rate in year three. Builders and sellers often fund these to move inventory, effectively subsidizing your early payments through an escrow account. Unlike discount points, which cut the rate permanently, a buydown is temporary and does not change your actual loan rate. It helps if you expect income to rise or plan to refinance soon, but qualify based on the full rate, since that is what you eventually pay. If the seller pays, it is essentially free money.