Updated September 24, 2026 • By Sean Mertens
A Temporary Rate Buydown can lower a homebuyer’s payments during the first one, two, or three years of a mortgage. It can provide breathing room for moving expenses, furnishings, or building savings after a purchase in San Luis Obispo County or elsewhere in California.
The starting payment is only part of the decision. Compare the upfront funding, each scheduled increase, and the full payment you will eventually make.
How does a Temporary Rate Buydown work?
Money is deposited into a dedicated account and used each month to cover part of your mortgage payment. You pay the reduced amount, and the subsidy covers the difference.
On a fixed-rate loan, the contractual interest rate—called the note rate—stays the same. A Temporary Rate Buydown changes your early out-of-pocket payment through a subsidy. It does not permanently change your loan’s interest rate. Fannie Mae explains the payment mechanics here.
Compare 1-0, 2-1 and 3-2-1 Temporary Rate Buydowns
The numbers describe the percentage-point reductions used to calculate your payments during the introductory years.
1-0 Temporary Rate Buydown: Your payment is calculated at 1 percentage point below the note rate in year 1. You make the full note-rate payment starting in year 2.
2-1 Temporary Rate Buydown: Your payment is calculated at 2 percentage points below the note rate in year 1 and 1 point below in year 2. The full payment starts in year 3.
3-2-1 Temporary Rate Buydown: Your payment is calculated at 3 percentage points below the note rate in year 1, 2 points below in year 2, and 1 point below in year 3. The full payment starts in year 4.
For the same loan, a 1-0 plan needs less funding and provides one year of relief. A 3-2-1 plan requires more funding and extends the subsidy across three years. Availability depends on the loan program and lender.
What does a Temporary Rate Buydown cost?
The subsidy equals the total difference between your reduced payments and the full principal-and-interest payment during the introductory period. It is separate from other closing costs.
Consider a hypothetical $600,000, 30-year fixed-rate loan with a 6.50% note rate. The full monthly principal-and-interest payment is $3,792.41.
1-0 Temporary Rate Buydown: $3,406.73 per month in year 1, then $3,792.41 from year 2 onward. Estimated subsidy: $4,628.16.
2-1 Temporary Rate Buydown: $3,040.11 per month in year 1, $3,406.73 in year 2, then $3,792.41 from year 3 onward. Estimated subsidy: $13,655.76.
3-2-1 Temporary Rate Buydown: $2,694.27 per month in year 1, $3,040.11 in year 2, $3,406.73 in year 3, then $3,792.41 from year 4 onward. Estimated subsidy: $26,833.44.
Illustration only; these figures are not a current rate quote. Payments exclude property taxes, homeowners insurance, mortgage insurance, HOA dues, and fees. Subsidies use the displayed cent-rounded payments; actual amounts and rounding may differ.
How much could my monthly payment decrease?
Using the displayed payments in the $600,000 example above, monthly principal and interest is $385.68 lower when calculated one percentage point below the note rate, $752.30 lower at two points below, and $1,098.14 lower at three points below. This payment relief comes from the upfront-funded subsidy. Your contractual note rate remains 6.50%.
Can the seller fund a Temporary Rate Buydown?
Yes, when the loan program permits it and the seller agrees. A seller or builder may contribute funds through the purchase negotiations. Some lenders also offer lender-funded options.
Seller-funded amounts count toward applicable seller-contribution limits. Those limits and other closing costs affect how much credit is available. Have your lender confirm the permitted funding before finalizing an offer. See Fannie Mae’s funding requirements.
For a Central Coast purchase, compare a Temporary Rate Buydown with a seller credit toward eligible closing costs, permanent discount points, and a price reduction. A credit can reduce cash needed at closing; a price reduction can lower the loan balance. Permanent discount points pay for a lower contractual interest rate, and their value depends partly on how long you keep the loan. Ask for a side-by-side comparison using the actual price, down payment, rate, and costs.
What happens when the payments increase?
The increases follow the agreed schedule, even if market interest rates stay high. In the 2-1 example, monthly principal and interest rises from $3,040.11 to $3,406.73, then to $3,792.41.
Taxes and insurance can change independently. Plan around the full housing payment rather than assuming a future raise or refinance will cover the increase.
Do I qualify using the lower payment?
For fixed-rate conventional loans following Fannie Mae or Freddie Mac requirements, qualification uses the full note-rate payment. Income, debts, credit, assets, and the property’s eligibility still matter. Freddie Mac’s qualification guidance confirms this requirement.
The introductory payment can help with cash flow after closing, but it does not replace the need to qualify for—and comfortably afford—the full payment.
What if I refinance before the Temporary Rate Buydown ends?
You may explore refinancing, but approval, lower rates, and savings are not guaranteed. A new loan can involve closing costs.
Ask your servicer how unused subsidy funds will be handled before paying off the mortgage. Under Fannie Mae’s rules, funds may be credited toward the payoff or returned to the borrower or lender as specified in the agreement. The outcome depends on your program and written terms. Review the unused-funds guidance.
Are Temporary Rate Buydowns available in SLO County?
Temporary Rate Buydowns may be available on eligible home purchases in San Luis Obispo County and elsewhere in California. Availability of 1-0, 2-1 and 3-2-1 plans depends on the lender, loan program and permitted funding source. Confirm the options for your purchase before relying on a seller credit or introductory payment.
Compare your purchase options
Use the Temporary Rate Buydown Calculator to explore payment changes, then book a consultation with Sean at Assist Home Loans. We can compare available 1-0, 2-1, and 3-2-1 Temporary Rate Buydowns, seller credits, and the full payment for your California home purchase.
