Seller-paid rate buydowns are having a moment. Not because they’re new—they’re not—but because when mortgage rates spike, suddenly everyone’s in the market for creative ways to make payments bearable.
The pitch sounds irresistible: instead of negotiating a lower sale price, you let the seller use that same money to subsidize your mortgage rate for the first few years. Your early payments shrink. The home still appraises at the higher price. And you get a lower effective rate without paying discount points yourself.
But here’s the question nobody asks early enough: is a temporarily lower rate actually better than permanent cash savings on the purchase price? The answer depends less on what sounds clever and more on how long you plan to stay, what rates do next, and whether you’re accidentally trading a bird in hand for two in the bush.
The Appeal: Lower Payments Without Touching Your Cash
A 2-1 or 1-0 buydown works like this: the seller pays your lender a lump sum at closing to reduce your interest rate for the first one or two years. If your note rate is 7%, a 2-1 buydown drops it to 5% in year one, 6% in year two, then back to 7% for the remaining term. A 1-0 buydown gives you one year at 6%, then the full 7% after that.
You’re not refinancing. You’re not paying points. The seller is prepaying a portion of your interest, and your payment reflects the subsidized rate during those early years.
For buyers stretching to afford a home, this can make the difference between qualifying and not. Your debt-to-income ratio is calculated using the first-year payment, which is lower. That can get you approved where the full-rate payment wouldn’t.
And if you’re convinced rates will drop and you’ll refinance within two years anyway, the buydown gives you breathing room without requiring you to bet your own capital on discount points that might never pay off.
The problem is that this same logic—rates will drop, I’ll refinance soon—has been wrong for a lot of people who bought in the last 18 months. And while you’re waiting, you’re living in a house that cost more than it had to.
The Hidden Cost: You Paid More for the House
Seller concessions aren’t free. When a seller agrees to a $10,000 rate buydown, they’re not writing that check out of generosity. They’re doing it instead of lowering the price by $10,000.
And here’s the part that gets glossed over: the higher purchase price stays with you. Permanently.
Your loan balance is higher. Your property taxes are based on a higher assessed value. If you have PMI, it’s calculated on a bigger loan. And if you sell before the home appreciates past what you paid, you’re eating that difference.
A price cut, by contrast, reduces everything downstream. A $10,000 lower price means $10,000 less in principal, less interest over 30 years, lower taxes, lower insurance, and more equity from day one.
The buydown gives you temporary payment relief. The price cut gives you permanent financial improvement. Those aren’t the same thing, even when the dollar amounts look identical.
When the Buydown Actually Wins
There are scenarios where the seller-paid buydown makes more sense than a straight price reduction, but they’re narrower than most buyers realize.
If you’re on the edge of qualifying and the lower first-year payment is the only way to get approved, the buydown might be your only path to ownership. A price cut doesn’t help if you can’t clear underwriting in the first place.
If you’re highly confident you’ll refinance within the buydown period—because rates are falling, your income is about to jump, or you’re planning to move soon—then the short-term savings can outweigh the long-term cost of a higher purchase price. You’re essentially using the seller’s money to bridge a gap you won’t be stuck with.
And if the local market is appreciating fast enough that the higher purchase price becomes irrelevant within a year or two, the buydown can feel like a wash. You’re not losing equity if the home’s value rises past what you paid before the rate adjustment hits.
But those conditions have to actually be true. “I’ll probably refinance” isn’t a plan. It’s a hope with a closing date.
When the Price Cut Is the Smarter Play
If you’re planning to stay in the home longer than the buydown term, the math usually favors the price reduction.
Let’s say you’re choosing between a $400,000 purchase with a 2-1 buydown or a $390,000 purchase at the full rate. The buydown saves you roughly $250/month in year one and $125/month in year two—call it $4,500 in total payment relief.
But the $10,000 higher loan balance costs you about $2,000 more per year in interest at 7%. Over five years, that’s $10,000 in extra interest, plus the compounding cost of starting with less equity. The buydown saves you $4,500 up front and costs you more than that on the back end.
The price cut, meanwhile, saves you money every single month for the life of the loan. You’re not racing a timer. You’re not hoping rates cooperate. You’re just starting with a better deal.
And if you’re in a market where appreciation is slow or uncertain, the higher purchase price becomes a real anchor. You’re starting underwater relative to where you could have been, and if you need to sell before values catch up, you’re losing money you didn’t have to lose.
The other factor: property taxes and insurance. Property tax rates vary significantly by location—from under 0.5% annually in some states to over 2% in others. On a $10,000 higher assessed value, that difference could mean anywhere from $50 to $200+ per year in additional taxes, compounding over time. The buydown doesn’t offset ongoing costs like these. The price cut eliminates them entirely.
The Refinance Gamble
The biggest assumption baked into most buydown decisions is that you’ll refinance before the subsidized rate expires. If that happens, you avoid the payment shock and keep the savings. If it doesn’t, you’re stuck with the full rate and the higher loan balance.
Refinancing isn’t free. You’ll pay closing costs—typically 2-3% of the loan amount—which means you need rates to drop enough to justify the expense. If your rate is 7% and you refinance at 6.5%, you’re probably not saving enough to cover the cost. You need a bigger spread.
And timing matters. If rates don’t drop within the buydown window, you’ll hit year three with a higher payment and no plan. If you’re already stretched, that adjustment can turn a manageable situation into a crisis.
Refinancing after one year can make sense if rates fall fast, but it’s a bet, not a certainty. And if you’re wrong, you’ve traded permanent savings for temporary relief.
Compare that to a price cut, which requires no future action and no gambling on rate movements. It’s locked in, regardless of what the market does next.
What About Resale Value?
One argument in favor of the buydown is that the higher purchase price supports the appraisal, which helps future buyers and theoretically protects your resale value.
This is mostly noise.
If comparable homes are selling for $400,000, the appraisal will come in near $400,000 whether you paid $390,000 or $400,000. You don’t get credit for overpaying. The market determines value, not your purchase price.
And if the market softens, you’re worse off having paid more. You have less equity buffer and more to lose if values dip.
The only time the higher purchase price helps is in a very hot market where appraisals are lagging sales prices and every dollar of comp data matters. That’s a narrow scenario, and it doesn’t justify paying $10,000 more as a general rule.
The Rule of Thumb
If you’re planning to stay in the home longer than the buydown term, take the price cut.
If you’re confident—genuinely confident, not hopeful—that you’ll refinance or move within the buydown window, the seller-paid buydown can make sense.
If you’re on the edge of qualifying and the buydown gets you approved, it might be your only option. But understand you’re trading long-term cost for short-term access.
And if the market is uncertain, rates are unpredictable, or you’re not sure how long you’ll stay, the price cut is the safer bet. It’s the option that doesn’t require things to go right later.
The Question You’re Not Asking Yet
The bigger decision isn’t whether to take the buydown or the price cut—it’s whether you’re buying the right house in the first place.
If you’re relying on a seller concession to make the payments work, you might be stretching too far. The buydown doesn’t change the underlying affordability problem. It just delays it.
So the real question isn’t: “Is the buydown better than a price cut?” It’s: “Am I buying a house I can actually afford at the full rate, or am I banking on things getting easier later?”
Because if the answer is the latter, maybe the smarter move is waiting until you’re not guessing.