What is a 3-2-1 Buydown Program?

Are you a homebuyer? Then you should know about the 3-2-1 Buydown Program, a program designed to help make mortgage payments more affordable. In this article, we'll explain what the 3-2-1 Buydown Program is, how it works, and what its advantages and disadvantages are. We'll also show you how to calculate the amount of buydown funds needed and how to use a mortgage payment calculator for the program. Read on to learn everything you need to know about the 3-2-1 Buydown Program!

What is a 3-2-1 Buydown Program?

A 3-2-1 buydown program is an interest-reduction mortgage program designed to help borrowers reduce their monthly payments by providing upfront funds that the lender uses to purchase down the interest rate for an extended period. The program is referred to as “3-2-1” because the amount of rate buydown decreases each year for three years. During the initial three years, a borrower’s mortgage rate is decreased by a predetermined percentage and then increases after the buydown period.

How does a 3-2-1 buydown program work?

A 3-2-1 buydown program works by reducing the interest rate paid on loan through the use of an upfront lump sum payment. This payment is known as buydown funds and it is provided by either the borrower or a third party. The lender then applies these funds toward the purchase of lower interest rate for a specific period (usually three years) in order to reduce a borrower’s monthly payments.


At the end of the three year period, the interest rate reverts back to its original level, unless the borrower obtains another form of financing. 

During this period, a portion of each mortgage payment may go toward paying off the principal and interest, as well as toward reducing or eliminating the extra buydown funds that were applied toward the lower interest rate.

How to calculate the amount of buydown funds needed 

Once you decide to use a 3-2-1 Buydown Program, the most important step is to determine the exact amount of buydown funds needed to make it happen. This depends on the loan amount, the interest rate, and the length of the loan. The formula for calculating the amount of buydown funds is as follows: loan amount multiplied by the interest rate, multiplied by the term of the loan, divided by three. This will give you the exact amount that will be needed for the buydown program.

Using a mortgage payment calculator

When it comes to understanding the 3-2-1 Buydown program so you can take advantage of its benefits, it can be beneficial to use a mortgage payment calculator. This simple tool helps you to compute the amount of your monthly payments over the life of your mortgage, factoring in the 3-2-1 buydown rates. All you have to do is enter the mortgage amount, interest rate and loan term of your loan, and the calculator will give you the estimated monthly payments. This can help you determine if this type of loan is right for you and what your monthly payments will look like over the course of your loan.

Advantages of a 3-2-1 Buydown Program

Wondering how this program could help you with your property purchase? There are several reasons:

Lower Interest Rate

The most obvious benefit of a 3-2-1 Buydown Program is that it can help borrowers get a lower interest rate on their mortgage. By paying the points up front, you can reduce your interest rate for the duration of the loan. This means you'll pay less in total interest over the life of the loan.

Flexible Payments

The staggered payments that come with a 3-2-1 Buydown Program also provide flexibility to borrowers who can't afford to pay all of the points up front.

Lower Closing Costs

When you use a 3-2-1 Buydown Program, your lender may be willing to cover some or all of your closing costs. Because they're getting paid upfront, they're more likely to offer lower closing costs than if you were financing your points over time. This can help you save money in the long run.

Longer Length Loan Term

Another advantage of using a 3-2-1 Buydown Program is that it allows you to extend your loan term. This means that you can stretch out your payments over a longer period of time, which could provide relief if you're having trouble making your mortgage payments each month. It also makes it easier to qualify for certain programs, such as an FHA loan, since longer loan terms require lower monthly payments. 

Affordable Option for Borrowers with Poor Credit 

A 3-2-1 Buydown Program is an affordable option for borrowers with poor credit who may not be able to qualify for a traditional mortgage loan. By paying points upfront and stretching out their repayment term, they may be able to qualify for a better interest rate than they would have gotten without the buydown program.  

Disadvantages of a 3-2-1 Buydown Program

The primary disadvantage of a 3-2-1 buydown program is that it requires an upfront lump sum payment from either the borrower or another third party, which may not be possible for some. 

Additionally, if a borrower defaults on their loan during or after the three year period, they will not be able to take advantage of any savings associated with the buydown program since their loan will revert back to its original terms. 

Finally, since many buyers opt for adjustable rate mortgages when initiating a 3-2-1 buydown program, they may end up with higher rates after their loan term is up—potentially increasing their monthly payments too much for them to maintain affordability.


A 3-2-1 buydown program can be an effective tool for helping borrowers reduce their monthly payments over an extended period of time—however, it requires an upfront lump sum payment that some may not be able to afford. Additionally, many borrowers end up with higher rates once their loan term is up if they opted for an adjustable rate mortgage during the buydown period. Ultimately, borrowers should evaluate all potential risks and rewards before deciding whether or not a 3-2-1 buydown is right for them. Contact for more information.

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