3/2/1 Buydown Calculator

3/2/1 Buydown Subsidy Calculator

Calculation Breakdown

Period	Effective Rate	Monthly Payment	Monthly Savings

Total Seller Contribution (Subsidy Cost): $0.00

function calculateBuydown() { var P = parseFloat(document.getElementById('principalBalance').value); var noteRate = parseFloat(document.getElementById('basePercentage').value); var years = parseFloat(document.getElementById('timeDuration').value); var n = years * 12; if (isNaN(P) || isNaN(noteRate) || isNaN(years) || P <= 0 || noteRate <= 0) { alert("Please enter valid positive numbers for all fields."); return; } function getMonthlyPayment(principal, annualRate, months) { var r = annualRate / 100 / 12; if (r === 0) return principal / months; return principal * (r * Math.pow(1 + r, months)) / (Math.pow(1 + r, months) – 1); } var standardPayment = getMonthlyPayment(P, noteRate, n); var year1Rate = noteRate – 3; var year2Rate = noteRate – 2; var year3Rate = noteRate – 1; var y1Payment = getMonthlyPayment(P, year1Rate, n); var y2Payment = getMonthlyPayment(P, year2Rate, n); var y3Payment = getMonthlyPayment(P, year3Rate, n); var y1MonthlySaving = standardPayment – y1Payment; var y2MonthlySaving = standardPayment – y2Payment; var y3MonthlySaving = standardPayment – y3Payment; var totalSubsidy = (y1MonthlySaving * 12) + (y2MonthlySaving * 12) + (y3MonthlySaving * 12); var tbody = document.getElementById('resultTableBody'); tbody.innerHTML = ""; var rows = [ { period: "Year 1", rate: year1Rate, payment: y1Payment, saving: y1MonthlySaving }, { period: "Year 2", rate: year2Rate, payment: y2Payment, saving: y2MonthlySaving }, { period: "Year 3", rate: year3Rate, payment: y3Payment, saving: y3MonthlySaving }, { period: "Years 4-30", rate: noteRate, payment: standardPayment, saving: 0 } ]; for (var i = 0; i < rows.length; i++) { var row = document.createElement('tr'); row.innerHTML = '' + rows[i].period + '' + '' + rows[i].rate.toFixed(3) + '%' + '$' + rows[i].payment.toLocaleString(undefined, {minimumFractionDigits: 2, maximumFractionDigits: 2}) + '' + '$' + rows[i].saving.toLocaleString(undefined, {minimumFractionDigits: 2, maximumFractionDigits: 2}) + ''; tbody.appendChild(row); } document.getElementById('totalSubsidy').innerText = '$' + totalSubsidy.toLocaleString(undefined, {minimumFractionDigits: 2, maximumFractionDigits: 2}); document.getElementById('buydownResults').style.display = 'block'; }

Understanding the 3/2/1 Buydown Structure

A 3/2/1 buydown is a specialized mortgage incentive that allows a homebuyer to pay a significantly lower interest rate during the initial three years of the loan term. This is typically funded by a seller concession or a builder incentive, where the "saved" amount is placed into an escrow account at closing to supplement the buyer's monthly payments.

How the Rate Schedule Works

The rates are structured to increase gradually until they reach the "Note Rate" (the permanent interest rate agreed upon during the loan application). The breakdown is as follows:

• Year 1: The interest rate is 3% lower than the Note Rate.
• Year 2: The interest rate is 2% lower than the Note Rate.
• Year 3: The interest rate is 1% lower than the Note Rate.
• Years 4-30: The borrower pays the full Note Rate for the remainder of the loan.

The Math Behind the Subsidy

To calculate the cost of a 3/2/1 buydown, you must determine the difference between the standard monthly payment and the reduced monthly payment for each of the first 36 months. For example, if the monthly savings in Year 1 is $500, the Year 1 subsidy cost is $6,000. The sum of all 36 months of savings equals the total subsidy amount that the seller must provide at closing.

Practical Example

Imagine a buyer purchasing a home with a $500,000 loan at a 7% Note Rate:

• Standard Payment: $3,326.51
• Year 1 (4%): Payment is $2,387.08 (Savings: $939.43/mo)
• Year 2 (5%): Payment is $2,684.11 (Savings: $642.40/mo)
• Year 3 (6%): Payment is $2,997.75 (Savings: $328.76/mo)
• Total Subsidy Required: Approximately $22,927.08

Is a 3/2/1 Buydown Right for You?

This strategy is ideal for buyers who expect their income to increase over the next few years or those who believe interest rates will drop in the near future, allowing them to refinance before the full Note Rate kicks in. It provides immediate relief on monthly cash flow during the expensive first few years of homeownership.