1. What is a Temp Buydown?

A temp buydown is a mortgage financing technique where the interest rate is temporarily reduced for the initial period of the loan, typically 1-3 years. This reduction is achieved by paying additional points or fees upfront to "buy down" the interest rate temporarily.

2. How Does the Calculator Work?

The calculator uses the temp buydown formula:

Where:

• \( \text{Rate} \) — Original interest rate (%)
• \( \text{Temp Reduction} \) — Temporary rate reduction (%)
• \( \text{Temp Rate} \) — Temporary interest rate during buydown period (%)

Explanation: The formula calculates the temporary interest rate by subtracting the buydown reduction from the original rate.

3. Importance of Temp Buydown Calculation

Details: Calculating the temporary rate helps borrowers understand their initial monthly payments and evaluate whether the upfront cost of the buydown is justified by the temporary payment reduction.

4. Using the Calculator

Tips: Enter the original interest rate and the temporary reduction percentage. Both values must be valid percentages (≥0).

5. Frequently Asked Questions (FAQ)

Q1: How long does a temp buydown typically last?
A: Temporary buydowns usually last for 1-3 years, after which the rate returns to the original interest rate.

Q2: Who pays for the temp buydown?
A: Either the borrower pays additional points upfront, or in some cases, the seller or builder may pay for the buydown as an incentive.

Q3: Are there different types of temp buydowns?
A: Yes, common types include 2-1 buydowns (2% reduction first year, 1% second year) and 3-2-1 buydowns (3% first year, 2% second, 1% third).

Q4: Does a temp buydown affect the loan's APR?
A: Yes, because the upfront buydown costs are included in the APR calculation, which provides a more comprehensive view of the loan's cost.

Q5: When is a temp buydown most beneficial?
A: It's most beneficial when borrowers expect their income to increase in the future or when they plan to refinance before the buydown period ends.