SELLER has his house on the market for $750,000 and the buyer has a 20% down payment and has been approved for a mortgage of $600,000 at 6.5% with a principal and interest payment of $3,792.40.

Now let’s consider the temporary buydown. If the seller is willing to reduce his price by $13,000, they should also consider a buyer incentive instead of the standard price reduction. The seller offers to fund a 2-1 Buydown.”

Now instead of 6.5%, the buyer’s rate is reduced to 4.5% for the first 12 months with a payment of $3040.

Months 13- 24 the buyer’s rate is 5.5% with a payment of $3406 and months 25 - 360, the rate is 6.5% with a payment of $3,792.

The total cost of the buydown, which the seller pays with proceeds at the closing, is actually $13,655. If the buyer follows statistics and stays in the home for 5 years, they would have saved $13,655 for the first 2 years. However, years 3 through 5, buyer would have paid $82 more per month* for a total of $2,952 more ($82 x 36 payments). So $13,655 minus $2,952, adjusted saving is $10,703.
* If the buyer accepted a standard $13,000 price reduction rather than a temporary buydown then his mortgage amount would have been $587,000 at 6.5%  rather than $600,000 at 6.5%  = $82/month.