2-1 Buydown vs. Price Cut vs. Builder Incentive: Which Saves More?
A 2-1 buydown gives you the biggest payment relief in the first two years. A price cut gives a smaller but permanent saving. A builder incentive depends on the price and the lender attached to it. Which one wins depends on how long you’ll keep the loan and how you’ll use the savings.
How does a 2-1 buydown work?
It lowers your interest rate by 2% in year one and 1% in year two, then the rate goes to the full note rate for the rest of the loan. The difference is paid up front and held in escrow. It can be paid by the seller, a builder or the buyer.
You generally qualify at the full note rate, so it helps your cash flow, not your qualifying. Confirm the details for your loan program.
What does the math look like?
Here’s an illustration on a $700,000 loan at a 7% note rate, principal and interest only. It’s not a quote.
Option | Year 1 payment | Year 2 payment | Year 3 and beyond |
No concession | $4,657 | $4,657 | $4,657 |
2-1 buydown (costs about $16,300) | $3,758 | $4,197 | $4,657 |
Same $16,300 as a price cut* | $4,570 | $4,570 | $4,570 |
*Assumes 20% down, so the price cut reduces the loan by about $13,050.
The buydown saves about $16,300 in the first two years. The price cut saves about $2,100 over those same two years, but about $87 a month for as long as you keep the loan, roughly $31,000 over 30 years if you never refinance.
When does each one win?
The buydown wins when you want relief now and expect to refinance, or your income will grow. It can also make a payment feel manageable in the early years of ownership.
The price cut wins when you plan to hold the loan for a long time and won’t refinance. It’s smaller each month, but it never goes away. It also lowers your property tax basis.
A builder incentive often looks like a rate buydown or closing cost credit through the builder’s preferred lender. It can be good, but compare it carefully. The price may be higher to pay for it, and you may have to use their lender.
What should you watch out for?
• Seller contribution limits. Each loan type caps how much a seller can pay toward things like a buydown, and the caps depend on your loan program and down payment.
• What happens in year three. Your payment steps up to the full note rate. Plan for it now.
• The whole cost. Compare total dollars, not just the first-year payment.
How do you decide?
Ask three questions. How long will I keep this loan? Do I plan to refinance if rates drop? What matters more to me right now, the payment this year or the total over time?
Want me to run your numbers? We’ll compare all three side by side. Talk to us
This is an illustration using hypothetical rates and loan amounts. It is not a rate quote. Actual terms vary by borrower, loan program and lender.
Mike Belfor, Branch Manager and Mortgage Loan Originator, American Pacific Mortgage, NMLS 264700 (Company NMLS 1850). Equal Housing Opportunity. Updated September 18, 2026.
A 2-1 buydown, a price cut and a builder incentive all lower your payment in different ways. The math on which saves more and when each one wins.
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