The note rate and amortization do not become permanently lower merely because a subsidy reduces the amount you pay in the early years. For Fannie Mae loans, qualification uses the note rate without the temporary reduction. [1] The lender must confirm the requirements of the actual program.
Enter the whole proposal
Enter principal, fixed note rate, term, start date and the proposed buydown schedule. The standard comparison uses a payment calculated two percentage points below the note rate for months one through twelve, one point below for months thirteen through twenty four, and the note payment afterward.
Add taxes, homeowners and flood insurance, association charges and mortgage insurance. Hold those items constant in the basic comparison to isolate the subsidy, with a clear reminder that actual ownership costs may later change.
Enter who funds the subsidy and the amount offered. Seller or builder funding may be subject to contribution rules and other transaction limits; an advertised incentive is not automatically unrestricted money. [2]
For an alternative, enter an actual permanent points quote or the amount of eligible closing costs the same funds could cover. The tool should never invent a permanent rate discount from the subsidy dollars.
What the formula shows
The calculator first finds the monthly principal and interest payment at the note rate. It calculates the temporary borrower amounts using the reduced payment rates, then totals the monthly differences for the first twenty four months.
The subsidy fills those differences under the modeled schedule. The output separately displays borrower payments, subsidy used and the scheduled note payment. It should not add the same subsidy to borrower expenses and then count it again as lender interest.
The temporary buydown guide explains the structure. This calculator focuses on the payment calendar and the alternatives for the same funding.
A fully disclosed example
Assume $400,000 principal, 6.75% fixed note rate and 360 payments. Assume the 2 1 schedule is accepted and that an eligible third party funds the subsidy. These are hypothetical terms, not current pricing.
| Period | ** Borrower principal and interest** | ** Other monthly costs assumed** | ** Listed borrower total** |
|---|---|---|---|
| Months 1 to 12, payment based on 4.75% | $2,086.59 | $900 | $2,986.59 |
| Months 13 to 24, payment based on 5.75% | $2,334.29 | $900 | $3,234.29 |
| Month 25 onward, note payment | $2,594.39 | $900 | $3,494.39 |
Using unrounded payments, total modeled subsidy is $9,214.85. The $900 assumption covers only the entered ownership costs; any omitted expense still needs to be added. It is held constant here to make the temporary payment change visible.
A household comfortable at $3,000 may find the first year close to its ceiling while the later listed total exceeds it by $494.39. The initial subsidy does not establish that the later payment is manageable.
Compare the same money another way
The results let you place the subsidy beside an accepted closing cost credit and a separately quoted permanent rate option. A closing credit preserves upfront cash; permanent points change the quoted note rate; the temporary subsidy changes the early borrower payment schedule.
Ask what happens on an early sale or refinance. Treatment of unused subsidy depends on the agreement and applicable rules. Do not enter it as a guaranteed cash refund or assume refinancing will be available before the payment increases.
Use the points calculator to investigate the permanent alternative and the seller credit guide for usable concessions. Other tools are in the calculator hub.
Send Dane the complete incentive terms, later payment and cash comparison. The important review is whether the home works after the subsidy ends and whether the offered funds are being used in the way that best supports your purchase.
This calculator gives an estimate only. It is not a loan offer or approval.