Comparing Permanent and Temporary Mortgage Buydowns

A mortgage buydown is a way to pay interest up front on your loan. A temporary mortgage buydown typically lasts one to three years. A permanent buydown is much less common, but it can last the length of the loan.

Temporary Buydown

The goal of a temporary arrangement is to reduce the cost of mortgage in the most expensive years in the home. New homeowners incur costs from moving, furnishing and finishing a property. These costs, plus the one-time payments for down payment and closing costs on the property, often make the first year the most expensive in a new home. A temporary buydown can relieve this.

Permanent Buydown

A permanent buydown is much less common due to the initial expense. To permanently buydown a mortgage, you must have a lump sum large enough to cover a payment as great as or more than the down payment on your home. Many buyers do not have this sum, and those who do may simply choose to take a smaller mortgage instead. A permanent buydown is more likely to occur if a buyer comes into a lump sum, for example, an inheritance, after living in a home for some time. The sum is not enough to cover the home's mortgage, but it can greatly reduce the cost of the mortgage.