Sticker shock from today’s mortgage rates can make even the right Burlington home feel out of reach. You are not alone if you want a lower payment without losing negotiating power on price. The good news is a rate buydown can create real payment relief, either for the first few years or for the life of the loan. In this guide, you will learn how temporary and permanent buydowns work, who can pay for them, and what the numbers look like at common Burlington price points. Let’s dive in.
What is a rate buydown?
A rate buydown lowers your mortgage interest rate by paying money up front at closing. The money can come from you, the seller, a builder, or a lender credit. You can structure it as temporary relief for the first one to three years or as a permanent rate reduction for the entire loan term.
Two common forms are used in Burlington area deals:
- Temporary buydown, like a 2-1 buydown that steps the rate down for the first two years.
- Permanent buydown, also called discount points, that lowers the note rate for the life of the loan.
Temporary buydown: the 2-1 explained
With a 2-1 buydown, your lender sets a normal market note rate. For illustration, assume 7.0 percent. In year 1, you pay as if the rate were 2 percent lower (5.0 percent). In year 2, you pay as if it were 1 percent lower (6.0 percent). From year 3 on, you pay the full 7.0 percent.
The subsidy that makes up the difference is funded at closing, often by the seller as a concession. The money is usually placed in a buydown escrow account and applied each month to cover the gap between the reduced payment and the full payment. A 2-1 typically costs roughly 2 to 3 percent of the loan amount to fund, though the exact figure depends on loan size, the market rate, and term.
Permanent buydown: discount points
A permanent buydown uses discount points. One point equals 1 percent of the loan amount, paid at closing. Points reduce your note rate according to the lender’s current price sheet. A common industry rule of thumb has been about a 0.25 percent rate reduction per point on a 30-year fixed, but actual pricing varies by lender, program, and day-to-day market conditions.
Permanent buydowns make the most sense when you plan to stay long enough for monthly savings to outweigh the upfront cost. That break-even point depends on your exact quote, so you should compare written options from your lender.
Who can pay for a buydown in Burlington?
More than one party can fund a buydown. In many Burlington transactions, sellers use a temporary buydown as a concession to help buyers manage payments without reducing the contract price. Builders also use buydowns to move inventory when rates are top of mind for buyers.
Other payors include:
- Seller or builder: common for incentives and concessions.
- Lender: sometimes by offering a credit that funds part of the buydown.
- Borrower: you can pay your own points or even fund a temporary buydown.
Any third-party funds must be documented and approved by the lender during underwriting. Program rules limit seller concessions and set guidelines for how the funds are handled.
How a 2-1 buydown changes payments
Below are illustrative scenarios using Burlington-area price points. Assumptions: 20 percent down on a 30-year fixed, a hypothetical 7.0 percent market rate, and a 2-1 buydown that delivers 5.0 percent in year 1 and 6.0 percent in year 2. These are examples for comparison only. Always use real lender quotes for your deal.
Example A: Lower-priced condo
- Price: $550,000. Loan: $440,000.
- Monthly payments (principal and interest):
- Full 7.0 percent: about $2,926
- Year 1 at 5.0 percent: about $2,363 (save about $563 per month)
- Year 2 at 6.0 percent: about $2,636 (save about $290 per month)
- Total subsidy to fund the 2-1: about $10,236, which is roughly 2.33 percent of the loan.
Example B: Typical single-family
- Price: $900,000. Loan: $720,000.
- Monthly payments:
- Full 7.0 percent: about $4,788
- Year 1 at 5.0 percent: about $3,866 (save about $922 per month)
- Year 2 at 6.0 percent: about $4,313 (save about $475 per month)
- Total subsidy: about $16,764, which is roughly 2.33 percent of the loan.
Example C: Higher-price property
- Price: $1,400,000. Loan: $1,120,000.
- Monthly payments:
- Full 7.0 percent: about $7,448
- Year 1 at 5.0 percent: about $6,014 (save about $1,434 per month)
- Year 2 at 6.0 percent: about $6,709 (save about $739 per month)
- Total subsidy: about $26,076, which is roughly 2.33 percent of the loan.
Key takeaway: a 2-1 buydown often costs around 2 to 3 percent of the loan amount to deliver meaningful relief in the first two years. The exact number depends on your loan details and the lender’s calculations.
When a permanent buydown makes sense
If you plan to own the home long enough, paying discount points can lock in a lower payment for the entire loan term. You will want to look at the break-even timeline. Compare the upfront cost in points to the monthly savings and see how many months it takes to recover your investment.
Because rate reductions per point vary, ask each lender for a pricing sheet that shows how many points are required for a given rate. Use those numbers to compute your payback period and to compare offers across lenders.
Permanent buydowns can be helpful if you expect to keep the home and loan for many years. If you anticipate selling or refinancing soon, a temporary buydown may provide more value for the first few years without paying for a permanent rate you may not keep.
Key rules and program limits
Not every buydown is allowed on every loan. Conventional, FHA, VA, and USDA programs have different rules. Lenders also have overlays that affect what is permitted in practice.
Here are the items to confirm early:
- Seller concession limits: Many programs cap total seller-paid concessions as a percentage of the price or loan amount. A seller-funded buydown generally counts toward that cap.
- Underwriting and qualification: For many conventional loans, lenders qualify you at the full note rate, not the reduced temporary payment. Ask how your lender will treat the buydown for debt-to-income and reserve requirements.
- Documentation and escrow: Funds for a temporary buydown are usually placed into a dedicated account at closing and applied monthly. Make sure the purchase agreement states the buydown amount, who pays, and timing.
- Appraisal impact: Large concessions can draw scrutiny and may interact with loan-to-value or reserve requirements. Confirm with the lender during underwriting.
- Prepayment and early sale: Ask how any unused subsidy funds are handled if you refinance or sell before the buydown period ends.
- Taxes and accounting: Treatment can vary. Discuss with a qualified tax professional if you need guidance on how a seller-paid buydown appears on closing documents and taxes.
Burlington negotiation tips
In a rate-sensitive market, temporary buydowns can unlock deals. For sellers, a 2-1 buydown can be a strategic alternative to a price cut when you want to keep the sale price intact. The lump-sum subsidy can deliver larger near-term payment relief for the buyer than a modest reduction in price.
For buyers, a seller-paid buydown can help with cash flow right away, especially if you expect rates to change or plan to refinance later. Coordinate with your lender and agent early to confirm eligibility and the exact subsidy amount needed to fund the buydown.
Practical pointers:
- Bring the buyer’s lender into the conversation before you make or accept an offer that includes a buydown.
- Ask the lender for a month-by-month schedule showing payments with and without the buydown and the total dollars required.
- Write the buydown details into the Purchase and Sale to avoid surprises at closing.
Checklist to compare lender quotes
Ask each lender to provide, in writing:
- The exact underwriting rules for temporary and permanent buydowns under your loan program.
- The itemized dollar cost to fund a 2-1 buydown for your loan amount and note rate.
- How the buydown will be documented and where the funds will be held.
- Whether they will qualify you using the full note rate or the buydown-adjusted payment.
- Whether a seller-paid buydown counts against seller concession limits and how much room remains for other credits.
- Any reserve or seasoning requirements triggered by the subsidy.
- For permanent buydowns, the pricing sheet that shows points required for specific rates.
Putting it all together
Rate buydowns are a practical tool in Burlington deals. Temporary buydowns deliver front-loaded relief without changing the long-term rate. Permanent buydowns reduce the rate for the life of the loan when the payback period makes sense. The best choice depends on your plans, your loan program, and the numbers in your written lender quotes.
If you want help evaluating your options or structuring a clean offer, connect with a local, hands-on brokerage that coordinates closely with lenders and attorneys. Talk with Nancy Fudge for practical guidance, a clear cost comparison for your situation, and to Get Your Free Home Valuation.
FAQs
What is a 2-1 temporary buydown on a Burlington home purchase?
- It is a structure where you pay as if your rate were 2 percent lower in year 1 and 1 percent lower in year 2, then the loan reverts to the full note rate from year 3 onward.
How much does a 2-1 buydown typically cost in dollars?
- As a rule of thumb, funding a 2-1 buydown often runs about 2 to 3 percent of the loan amount, with the exact amount based on your loan size and rate.
Who can pay for a buydown in Massachusetts transactions?
- The seller, builder, lender, or you can fund a buydown, subject to program rules and seller concession limits that vary by loan type and lender.
Will a temporary buydown help me qualify for the mortgage?
- Many conventional lenders qualify you at the full note rate rather than the reduced temporary payment, so ask your lender how they will calculate your debt-to-income ratio.
What happens to unused buydown funds if I refinance or sell early?
- Policies vary, so have the lender clarify in writing how any remaining subsidy funds are handled if you prepay or sell during the buydown period.
Are buydowns allowed on FHA, VA, or USDA loans?
- Many programs allow buydowns, but rules differ by program and lender overlay. Confirm eligibility, concession limits, and documentation with your lender before you write the offer.
