Published October 1, 2026
2-1 Buydown vs. Permanent Buydown: Running the Actual Numbers for Denver Buyers in 2026
Mortgage rates are sitting near 6.76%–6.85% in late September 2026, following the Federal Reserve’s September 16 rate hike. That’s putting monthly affordability at the center of many Denver-area negotiations.
Sellers and builders are responding with closing credits, promotional rates, and temporary buydowns. For buyers in Denver, Centennial, and Aurora, two options come up frequently:
- A 2-1 temporary buydown, which reduces the effective payment for the first two years
- A permanent buydown, usually purchased with discount points, which reduces the mortgage rate for the life of the loan
They can both lower your payment, but they solve different problems. Here’s how the math works.
The short answer
A 2-1 buydown may make more sense if:
- You expect to refinance when rates improve
- You may sell within a few years
- You need the most payment relief early in the loan
- The seller or builder is funding the buydown through a concession
A permanent buydown may make more sense if:
- You expect to keep the mortgage for many years
- You have cash available at closing
- You want a lower payment beyond the first two years
- Your break-even point is shorter than your expected holding period
The important distinction is that a 2-1 buydown doesn’t change your actual mortgage note rate. A permanent buydown does.
How a 2-1 buydown works
A 2-1 buydown reduces the effective interest rate by:
- 2 percentage points during year one
- 1 percentage point during year two
- 0 percentage points beginning in year three
Suppose your note rate is 6.85%. Your payment would be calculated as though the rate were:
Your permanent note still says 6.85%. The lower first- and second-year payments are funded by money deposited into a buydown account at closing.
As Fannie Mae explains, “the mortgage instruments must reflect the permanent payment terms rather than the terms of the buydown plan.” In other words, your lender must qualify you based on the full note-rate payment, not the temporarily reduced payment.
Read the Fannie Mae guidance on temporary interest-rate buydowns for the applicable requirements.
Where does the buydown money go?
The seller, builder, lender, or another permitted party contributes the agreed amount at closing. Those funds are placed into a custodial or escrow account, and the mortgage servicer applies them over the first two years to cover the payment difference.
That means the funds aren’t simply handed to you as cash. They’re reserved for the specific purpose of reducing your payments.
Your lender should provide written terms showing:
- The full note rate
- The temporary payment rates
- The amount deposited into the buydown account
- How the funds will be applied
- What happens if you refinance or pay off the loan early
The buydown arrangement should also appear in the applicable loan and closing disclosures. Don’t rely only on a builder’s advertisement that says “payments as low as…” Ask to see the full payment schedule.
How a permanent buydown works
A permanent buydown uses discount points to reduce your actual mortgage rate for the entire loan term.
One point generally costs 1% of the loan amount. A common rule of thumb is that one point may reduce the rate by approximately 0.25 percentage points, although the actual reduction varies by lender, loan program, market conditions, and borrower profile.
For example:
- Loan amount: $475,600
- One point: approximately $4,756
- Two points: approximately $9,512
- Potential rate reduction with two points: approximately 0.50 percentage points
If the starting rate is 6.85%, two points might reduce the permanent rate to approximately 6.35%. Your lender must provide the actual rate-and-cost comparison.
Unlike a 2-1 buydown, the permanent reduction continues after year two. That can produce meaningful savings if you keep the loan long enough to recover the upfront cost.
A Denver example: $594,500 purchase price
Let’s use a representative purchase price near the Denver Metro median:
- Purchase price: $594,500
- Down payment: 20%
- Loan amount: $475,600
- Loan term: 30-year fixed
- Starting note rate: 6.85%
- Taxes, insurance, HOA dues, and mortgage insurance excluded
These are estimates for education, not a loan quote. Actual payments will vary.
Option 1: Seller-funded 2-1 buydown
Estimated payment subsidy:
- Year one: approximately $606 per month × 12 = $7,272
- Year two: approximately $311 per month × 12 = $3,732
- Estimated total buydown cost: about $11,000
A seller or builder may agree to contribute that amount as a concession. The exact figure will depend on the lender’s calculation.
Option 2: Permanent buydown with two points
Assume two points reduce the rate from 6.85% to approximately 6.35%.
The simple break-even calculation is:
$9,512 upfront cost ÷ $157 monthly savings = approximately 61 months
That’s roughly five years.
If you sell or refinance before the break-even point, you may not recover the cost of the points. If you keep the loan well beyond five years, the permanent buydown has more time to produce savings.
Comparing the payment and total-cost impact
Here’s a simplified comparison using the same assumptions:
Over the first two years, the 2-1 buydown provides approximately $11,000 in payment relief. That can help buyers manage moving expenses, new furniture, repairs, childcare, or the general cost of settling into a home.
But once year three begins, the payment rises to the full 6.85% amount.
With the permanent buydown, the payment stays approximately $2,959 for the full 30-year schedule. If you kept the mortgage for all 30 years, the permanent reduction could save roughly $47,000 in interest after accounting for the approximate $9,512 cost of the points.
That long-term projection isn’t a promise. Most homeowners don’t keep the same mortgage for 30 years, and future refinancing, selling, prepayments, tax considerations, and rate changes can materially affect the result.
Seller concessions in Denver in 2026
A seller-funded 2-1 buydown is a form of seller concession. Instead of reducing the purchase price, the seller contributes money toward an allowable buyer expense, in this case, the temporary payment subsidy.
That distinction matters during a Denver buyer negotiation in 2026.
A $10,000 price reduction on a $594,500 home with a 20% down payment reduces the loan amount by approximately $8,000. At a 6.85% rate, that may reduce principal and interest by only about $52 per month.
A $10,000 concession used toward a 2-1 buydown could reduce the buyer’s first two years of payments by hundreds of dollars per month.
Neither option is automatically better. The seller’s contribution must comply with the loan program’s concession limits, and the credit generally can’t exceed eligible closing costs and permitted prepaid expenses. Your lender should confirm the limits before you write the offer.
For more negotiation context, see Cadre’s guide to negotiating in Denver’s balanced market.
Builders are using similar incentives
New-home builders in the Denver Metro area, particularly in parts of Aurora, may advertise promotional rates or closing-cost credits. Those offers can be attractive, but compare them carefully.
Ask:
- Is the promotional rate temporary or permanent?
- Is the builder requiring you to use an affiliated lender?
- What is the note rate after the promotion ends?
- Does the offer replace other available incentives?
- What happens if you refinance or sell early?
- Is the builder contributing to a 2-1 escrow account or paying permanent points?
A low payment during the first year isn’t the same as a low long-term cost. Compare the complete Loan Estimate, not just the headline rate.
Which option fits your situation?
Choose a 2-1 buydown when early affordability is the priority
A 2-1 structure may fit a first-time buyer whose income is likely to grow, a buyer expecting to refinance, or someone who wants to preserve cash for reserves and moving expenses.
It can also be especially compelling when the seller or builder is paying the cost. You’re receiving payment relief without using your own savings for discount points.
However, don’t buy a home you can afford only during year one. You should be comfortable qualifying for and eventually making the full note-rate payment.
Consider permanent points when you’ll stay long term
A permanent buydown may fit a buyer purchasing a long-term home, especially if the buyer has sufficient cash after the down payment and emergency reserves.
The key is the break-even period. If the permanent points cost $9,512 and save $157 per month, you need to keep the loan for about five years just to recover the upfront expense.
If you expect to move or refinance in two years, points may not be the best use of your cash.
Compare both options before accepting a concession
If a seller offers $10,000, ask your lender to run at least three versions:
- Apply it toward a 2-1 buydown
- Apply it toward permanent discount points
- Apply it toward other allowable closing costs
Then compare the monthly payment, cash to close, remaining loan balance, and estimated interest over the number of years you realistically expect to keep the home.
Cadre’s financing resource can help you understand the general loan process, but your lender should provide the official calculations for your specific loan.
The bottom line
A 2-1 buydown is primarily a short-term cash-flow tool. A permanent buydown is primarily a long-term interest-saving tool.
In Denver’s 2026 market, where sellers and builders are increasingly offering concessions, the best strategy may depend less on the name of the incentive and more on whose money funds it, how long you’ll keep the loan, and whether the full payment fits your budget.
Before making a decision, ask your lender for a side-by-side comparison based on your actual loan amount and expected timeline. Then use that information during your Denver home search and negotiations, not a promotional payment that disappears after 12 months.
Start searching Denver Metro homes, or connect with Cadre for an educational, numbers-first conversation about buying in Denver, Centennial, or Aurora.
This article is for general educational purposes and isn’t mortgage, tax, or financial advice. Rates, discount-point pricing, concession limits, and loan-program rules vary. Consult a licensed lender for terms specific to your situation.
