Glossary term
1-0 Buydown
A 1-0 buydown temporarily lowers a mortgage payment for the first year before the borrower pays the full note-rate payment.
Updated
Read time
What Is a 1-0 Buydown?
A 1-0 buydown is a temporary mortgage buydown that lowers the borrower's effective payment rate for the first year, usually by 1 percentage point. After that first year, the borrower pays the full note-rate payment for the remaining loan term.
The note rate itself does not permanently change. The lower first-year payment is typically funded upfront by a seller, builder, lender, or borrower through a buydown account that covers the payment difference during the temporary period.
Key Takeaways
- A 1-0 buydown lowers the effective payment rate for only the first year.
- The payment usually moves to the full note-rate amount in year two.
- The upfront buydown cost may be paid by the seller, builder, lender, or borrower.
- It is different from discount points that permanently reduce the interest rate.
- Borrowers should qualify and budget for the full payment, not just the first-year payment.
How the One-Year Step Works
If the note rate is 7%, a 1-0 buydown might make the first 12 payments look as if the rate were 6%. In year two, the borrower pays based on the full 7% note rate. The loan contract still has the full note rate; the buydown funds temporarily make up the difference.
This can reduce first-year cash-flow pressure after a home purchase, when moving costs, repairs, furnishings, and other expenses may be high. It does not solve long-term affordability if the full payment is too large for the household budget.
1-0 Buydown Payment Timeline
Period | Typical payment treatment |
|---|---|
Year 1 | Payment based on an effective rate 1 percentage point below the note rate |
Year 2 and after | Payment based on the full note rate |
What Borrowers Should Compare
A 1-0 buydown should be compared with other uses of the same money. A seller credit might also support closing costs, a lower purchase price, a permanent rate buydown, or cash reserves. The right comparison is not simply lower first-year payment versus no help. It is whether temporary payment relief is the best use of the available concession.
Borrowers should also ask what happens if they sell or refinance during the buydown period and whether unused buydown funds are applied according to the loan documents.
The Bottom Line
A 1-0 buydown temporarily reduces a mortgage payment for the first year and then steps up to the full note-rate payment. It can ease early cash flow, but it should be evaluated against the full payment and other possible uses of the same closing concession.