Rate Buydown vs Price Cut Calculator: Which Saves More?

🏷️ Rate Buydown vs Price Cut Calculator

Enter the home price and the seller's credit. Results update as you type.

Home Price ($)

Down Payment (%)

Mortgage Rate (%)

Seller Credit ($)

Rate Drop per Point (%)

Years You'll Keep the Loan

💡 One point = 1% of the loan. It usually lowers the rate about 0.25%, but ask your lender for real quotes. "Years you'll keep the loan" means until you sell or refinance.

Rate Buydown vs Price Cut: The Short Answer

A rate buydown almost always gives you the lower monthly payment, because the seller's money lowers the interest rate on your whole loan. A price cut lowers your loan balance and down payment instead, and that money stays yours if you sell or refinance early. So the right choice comes down to one question: how long will you keep this loan?

Example: $12,000 Seller Credit on a $400,000 Home

10% down, 30-year fixed at 7.24%, and the common rule of thumb that one point lowers the rate by 0.25%:

	No credit	$12,000 price cut	$12,000 permanent buydown
Loan amount	$360,000	$349,200	$360,000
Rate	7.24%	7.24%	6.41% (3.33 points)
Monthly P&I	$2,453	$2,380	$2,253
Monthly savings	—	$74	$200
Down payment	$40,000	$38,800	$40,000

The buydown cuts the payment by almost three times as much. But count everything you'd pay if you sold or refinanced: down payment, every monthly payment, and the balance you'd still owe. On that measure, the price cut wins for about the first 5 years, and the buydown wins after that. At 7 years the buydown is ahead by about $3,900; at 10 years, by about $10,800.

When a Price Cut Wins

You expect to refinance soon. If rates fall and you refinance in 2 or 3 years, the points you paid for are gone, but the lower balance from a price cut stays with you.
You might sell within a few years. A smaller loan means more equity when you sell.
Your property taxes are based on the price. A lower price can mean lower taxes every year.
You need less cash at closing. With a percentage down payment, a lower price lowers your down payment too.

When a Rate Buydown Wins

You plan to keep the loan for many years. The lower rate keeps saving every month for the life of the loan.
You need a lower payment to qualify. A lower payment improves your debt-to-income ratio.
Points are priced well. If your lender gives more than 0.25% per point, the buydown gets even stronger.

Permanent Buydown vs 2-1 Buydown

A permanent buydown uses points to lower the rate for the life of the loan. A 2-1 buydown is temporary: the rate is 2% lower in year 1 and 1% lower in year 2, then goes back to the full rate. A 2-1 buydown helps if you expect your income to rise or plan to refinance within two years, but from year 3 on you pay the full rate. In the example above, a 2-1 buydown costs about $8,482, which would leave about $3,518 of the seller's credit for closing costs.

Limits on Seller Credits

Loan type	Typical seller contribution limit
Conventional, less than 10% down	3% of the price
Conventional, 10% to 25% down	6%
Conventional, more than 25% down	9%
FHA	6%
VA	4% for certain concessions

Seller-paid points count toward these limits. Primary residence limits shown; your lender will confirm the exact limit for your loan.

📋 Sources: Fannie Mae Selling Guide B3-4.1-02: Interested Party Contributions · Lower: FHA and VA seller concession limits · Freddie Mac PMMS: weekly mortgage rates

Frequently Asked Questions

Is a rate buydown better than a price cut?

For your monthly payment, usually yes. In our example, a $12,000 seller credit used to buy down the rate lowers the payment by $200 a month, while a $12,000 price cut lowers it by about $74. But a price cut also lowers your loan balance and your down payment, so if you sell or refinance within about 5 years, the price cut can come out ahead. The calculator shows the break-even year for your numbers.

How much does one mortgage point lower the rate?

One point costs 1% of the loan amount and typically lowers the rate by about 0.25%, but it varies by lender and market, from roughly 0.125% to 0.375%. Ask your lender for the exact rate at each point level and enter it in the calculator.

What is a 2-1 buydown?

A 2-1 buydown is a temporary buydown: your rate is 2% lower in year 1 and 1% lower in year 2, then returns to the full rate from year 3 on. The seller's credit prepays the difference. It helps the first two years but does nothing after that, unlike a permanent buydown.

How much can a seller contribute toward a buydown?

Seller contributions, including points, have limits. On conventional loans for a primary home, Fannie Mae allows 3% of the price with less than 10% down, 6% with 10% to 25% down, and 9% with more than 25% down. FHA allows up to 6%. VA caps certain seller concessions at 4%. Your lender will confirm the limit for your loan.

Does a price cut lower my property taxes?

It can. Property taxes are often based on the purchase price or an assessed value tied to it, so a lower price may mean lower taxes every year. That is one advantage of a price cut that a buydown doesn't give you. Rules vary by state and county.

Rate Buydown vs Price Cut Calculator