3-2-1 Buy Down

Understanding Interest Rates & the 3-2-1 Buydown: A Smart Strategy for Today’s Buyers

In a shifting real estate market, interest rates play a major role in home affordability. While rates around 6% may seem high compared to the historically low 4% rates many buyers became used to, it’s important to understand what this actually means for your monthly payment — and how a 3-2-1 buydown can soften the impact.

Let’s break it down.

📉 4% vs. 6% Interest Rate: What’s the Real Difference?

Consider a $400,000 mortgage with a 30-year fixed term:

• At 4% interest, your principal and interest payment would be around $1,910/month

• At 6% interest, that jumps to approximately $2,398/month

That’s a difference of about $488/month — or nearly $6,000 more per year.

While 6% isn’t historically outrageous (ask anyone who bought in the 80s or 90s), it can certainly affect buying power and comfort level.

🧠 Enter: The 3-2-1 Buydown

A 3-2-1 buydown is a creative financing strategy that can be negotiated as part of your purchase contract, often paid by the seller as a concession.

Here’s how it works:

• Year 1: Your interest rate is 3% below the note rate (so if your locked rate is 6%, you only pay 3% the first year)

• Year 2: Your rate is 2% below (you pay 4%)

• Year 3: You’re 1% below (you pay 5%)

• Year 4 and beyond: The full rate kicks in (you pay 6%)

This structure allows you to ease into your mortgage payments, which is especially helpful during the early years of homeownership when expenses like furnishings, upgrades, or moving costs add up.

💡 Why Sellers Offer This

In today's market — especially where home inventory is high or price reductions are common — many sellers are open to offering concessions instead of lowering their price.

A buydown often costs less than a major price drop and can be a win-win:

• The seller gets their price.

• The buyer gets financial breathing room.

• Everyone gets to the closing table.

🔄 Bonus: What If Rates Drop?

Here's the beauty: If rates fall in the future, you can refinance. You’ll have already benefited from lower introductory payments, and if rates come down, a refinance can lock in savings long-term.

🏁 Final Thoughts

Yes, interest rates have risen — but homeownership is still within reach. Tools like the 3-2-1 buydown allow buyers to manage their budgets more comfortably, especially when paired with a thoughtful offer and a motivated seller.

If you're considering buying a home and want to explore how a buydown could work in your favor, let's talk. There’s more flexibility in today’s market than you might think — and smart strategies like this one can make all the difference.