Are higher mortgage rates making you rethink your Glendale move? You are not alone. Many buyers and sellers in Maricopa County are using rate buydowns to lower monthly payments and make deals come together. In this guide, you will learn the difference between temporary and permanent buydowns, how the math works, who can pay, and what to watch for in Arizona contracts. Let’s dive in.
What is a rate buydown?
A mortgage rate buydown is an up-front payment that reduces your interest rate for a set period or for the life of the loan. The fee can be paid by you, the seller, a builder, or another permitted party, subject to lender and loan program rules.
There are two common types:
- Temporary buydown: Your payment is lower for the first 1 to 3 years, then steps up to the full note rate.
- Permanent buydown: You pay discount points to reduce your rate for the life of the loan.
Temporary vs. permanent: how each works
Temporary buydown basics
A temporary buydown, such as a 2-1 buydown, lowers your effective rate by 2 percent in year one and 1 percent in year two. The lender collects the total subsidy at closing and holds it in escrow, then applies monthly credits to reduce your payment during the buydown period. After the buydown ends, your payment moves to the full note rate.
Key points:
- You often must still qualify at the full note rate, not the lower buydown rate.
- The full subsidy is typically paid as a lump sum at closing.
- Your payment schedule will show the lower payments for each buydown year and the step-up to the note rate.
Permanent buydown basics
A permanent buydown uses discount points. One point equals 1 percent of the loan amount. The rate reduction per point varies by market and lender. A common rule of thumb is about 0.125 to 0.25 percentage point per point, though it changes with pricing.
Key points:
- You pay points at closing to lower your interest rate for the life of the loan.
- Monthly savings start right away and continue as long as you hold the loan.
- Whether points pay off depends on your break-even timeline.
Who can pay in Glendale
Buyers, sellers, and builders can pay for buydowns, as long as the loan program and lender allow it. Seller-paid buydowns count as seller concessions. Each loan type has its own concession limits and rules. Confirm limits with your lender for conventional, FHA, VA, or USDA loans before you write an offer.
In Arizona, customary purchase agreements allow you to negotiate who pays closing costs and credits. If a seller funds a buydown, the concession and purpose must be clear in the contract and acceptable to the lender. Make sure the title or escrow company handles the funds exactly as the lender requires.
Local practical notes for Glendale:
- Market conditions matter. In a more competitive environment, sellers may resist concessions. In a slower environment, sellers and builders may offer buydowns to make monthly payments more attractive to buyers.
- HOA dues are common for Glendale condos and some communities. Lenders include HOA dues in debt-to-income calculations. A buydown can lower your mortgage payment, but it does not change HOA dues.
- Appraisal sets value. A buydown does not change the appraised value or your required down payment percentage.
How lenders qualify you
Many lenders underwrite at the note rate or a program-defined qualifying rate for temporary buydowns. That means the buydown may not improve your ability to qualify, even if it lowers your initial payment. Ask your lender upfront whether they qualify at the buydown rate or the note rate, and whether the subsidy must be documented at closing.
For permanent buydowns, your lower note rate generally flows through to your qualification. Either way, HOA dues, taxes, insurance, and any mortgage insurance still count in your debt-to-income ratio.
Hypothetical examples for Glendale buyers
These examples use hypothetical numbers. Rates and pricing change often, so have your lender run current figures for your exact loan.
Example A: Permanent buydown with points (hypothetical)
- Purchase price: $400,000
- Down payment: 20 percent
- Loan amount: $320,000
- Note rate without points: 6.50 percent, 30-year fixed
- Pay 1 point (1 percent of loan = $3,200) to reduce rate by 0.25 percent to 6.25 percent
Monthly principal and interest:
- At 6.50 percent: about $2,024 per month
- At 6.25 percent: about $1,967 per month
- Monthly saving: about $57
- Break-even: $3,200 divided by $57 is about 56 months, or roughly 4.7 years
Interpretation: If you expect to keep this loan longer than the break-even period, points may make sense. If you plan to move or refinance sooner, you might not recoup the cost.
Example B: 2-1 temporary buydown (hypothetical)
- Loan amount: $320,000, note rate 6.50 percent, 30-year fixed
- Year 1 effective rate: 4.50 percent
- Year 2 effective rate: 5.50 percent
- Year 3 and beyond: 6.50 percent
Monthly principal and interest at each rate:
- At 6.50 percent: about $2,024 per month
- At 4.50 percent: about $1,621 per month
- At 5.50 percent: about $1,815 per month
Subsidy calculation:
- Year 1 monthly subsidy: about $403, total about $4,836
- Year 2 monthly subsidy: about $209, total about $2,508
- Total two-year subsidy: about $7,344
Who pays: The buyer or the seller can fund the subsidy, subject to program concession limits and lender approval. The subsidy is usually paid at closing and held in escrow to reduce the first 24 payments.
When a buydown makes sense in Glendale
Good fit for buyers who:
- Expect income to rise and want lower starter payments.
- Plan to sell or refinance within a few years and value short-term cash flow.
- Want a payment cushion while they settle in and build equity.
Good fit for sellers or builders who:
- Want to make a listing more attractive without a permanent price cut.
- Prefer marketing a lower monthly payment to reach more qualified buyers.
- Can fund a one-time concession to improve time on market.
When to think twice:
- If you will keep the loan past the break-even for permanent points, compare other pricing options or lender credits.
- If your lender will qualify you at the note rate, a temporary buydown may not help approval.
- If seller concessions would exceed program limits, the loan could be at risk.
Cost, break-even, and refinance planning
For permanent points, compare the up-front cost to the monthly savings to find your break-even months. If you expect to move or refinance before that point, consider whether points still fit your plan. For temporary buydowns, total the difference between the note-rate payment and the reduced payment for each buydown month to find the needed subsidy.
Ask your lender:
- The exact cost per point and the rate reduction you can expect.
- The total subsidy required for any temporary buydown and whether funds will be held in escrow.
- Whether any lender or investor admin fees apply.
Tax note: Points may be treated as prepaid interest under IRS rules. Temporary buydowns are often treated differently. Tax treatment depends on your situation, so consult a qualified tax advisor.
Steps to set up a buydown
Check with a lender early. Ask whether they will qualify you at the buydown rate or the note rate, and request a written estimate of the subsidy and any fees.
Confirm program rules. Verify seller concession limits and acceptable uses for your specific loan type.
Build it into your offer. If the seller will pay, state the exact dollar amount and purpose of the concession in the purchase contract and note it is subject to lender approval.
Instruct title or escrow. Ensure closing instructions specify who pays the buydown and how funds will be disbursed per lender direction.
Check taxes and timing. Ask a CPA about deductibility and how a buydown fits into your tax planning.
Re-verify before closing. Confirm lender acceptance and that your payment schedule reflects the arrangement.
Key questions to ask your lender
- Will you underwrite at the buydown rate or the note rate, and how does that affect my qualification?
- What is the current cost per point and expected rate reduction for permanent points?
- For a 2-1 or similar buydown, what is the exact subsidy needed, and will you accept seller-paid funds held in escrow?
- Are there any lender or investor fees to administer a temporary buydown?
- Do seller-paid buydowns count toward seller concession limits for my loan type, and what are those limits?
- Will the buydown affect my APR disclosure, mortgage insurance, escrow setup, or other loan terms?
- If the seller pays points, how could that affect potential mortgage interest or points deductibility for me?
- If I plan to refinance, how long should I hold this loan to recoup the buydown cost?
Contract and escrow checklist in Arizona
- Specify the exact dollar amount or percent the seller will contribute and the intended use, such as a 2-1 buydown or permanent points.
- Include language that the contribution is subject to lender and loan program approval.
- Confirm how title or escrow will disburse the funds at closing and obtain the lender’s acceptance documentation.
Final thoughts and local guidance
A rate buydown is a flexible tool that can give you short-term relief or long-term savings, but the best choice depends on your loan program, qualifying rules, and timeline. In Glendale, details like HOA dues, concession limits, and contract language can make or break the strategy. If you are weighing a 2-1 buydown versus points, have your lender run current numbers side by side.
If you want a clear plan for your Glendale purchase or sale that fits your budget and timing, reach out to Logan Lewis for a local consultation. You will get practical options, lender-introductions if needed, and a clean path from offer to close.
FAQs
What is a 2-1 buydown in Glendale?
- A 2-1 buydown lowers your effective rate by 2 percent in year one and 1 percent in year two, then your payment steps up to the full note rate in year three.
Can a Glendale seller pay for my buydown?
- Yes, seller-paid buydowns are a form of seller concession, but loan programs cap concessions, and the lender must approve how funds are used.
How much does 1 point lower my rate?
- It varies by market and lender; a common rule of thumb is about 0.125 to 0.25 percentage point per point, but you should confirm current pricing.
Will a temporary buydown help me qualify for a loan?
- Many lenders still qualify you at the note rate for temporary buydowns, so it may not improve approval even if it lowers your initial payment.
Are points or buydowns tax-deductible?
- Points may be treated as prepaid interest under IRS rules, while temporary buydowns are often treated differently; consult a tax professional.
What happens if I refinance during a temporary buydown?
- Policies differ, so ask your lender how any remaining buydown funds in escrow will be handled and whether the arrangement affects payoff timing or terms.
Do HOA dues change the benefit of a buydown?
- HOA dues count in your debt-to-income ratio and do not change with a buydown, so include them when you evaluate monthly payment savings.
