What Is a Seller-Paid Rate Buydown

I get asked this question quite a bit in today's high interest rate environment - and honestly - a seller-paid rate buydown can be a game-changer for both buyers AND sellers. It’s one of the most effective tools sellers can use to make their property more appealing—and it can help buyers feel more confident about their monthly payment.

So what is it?

A seller-paid rate buydown is a financial incentive where the seller contributes money toward the buyer’s closing costs in order to temporarily lower their mortgage interest rate. This results in lower monthly payments for the buyer during the early years of the loan—which can often make the difference between hesitation and an offer.

Two Common Types: 2-1 and 3-2-1 Buydowns

Here’s how it works:

• 2-1 Buydown: The interest rate is reduced by 2% in the first year and 1% in the second year.
  For example, if the buyer locks in a 6.5% mortgage rate, they’ll pay:

  • 4.5% in Year 1

  • 5.5% in Year 2

  • 6.5% starting in Year 3 and beyond

• 3-2-1 Buydown: This version stretches out the lower payments over three years:

  • 3.5% in Year 1

  • 4.5% in Year 2

  • 5.5% in Year 3

  • 6.5% starting in Year 4 and beyond

These buydowns are funded by the seller, either as a flat dollar amount or a percentage of the buyer’s loan. The cost depends on the loan size and the type of buydown, but the benefit is clear: more buyers may be willing to move forward knowing they’ll have breathing room during the first few years of homeownership. There are also options for permanent rate buydowns and you'll often see builders in new construction communities offering these types of incentives if buyers choose to use their preferred lenders. Your real estate and loan advisors are here to help you understand the ins and outs of buydowns and what might work best for your situation.

Why This Matters

For sellers, offering a buydown can be more strategic than a price drop. It directly addresses the monthly payment concerns many buyers have and can help your home stand out in a competitive market.

For buyers, it’s a way to ease into their new home financially—with the potential to refinance down the road if rates improve.

Thinking about selling your home and want to explore strategic incentives like a rate buydown? I’d love to help you crunch the numbers and decide what makes the most sense for your goals. Let’s talk!