Utah Builder Rate Buydowns Explained: 2-1, 3-2-1, and Permanent Buydowns

Rate buydowns have become one of the most popular builder incentives in Utah's higher-rate environment. But not all buydowns are equal — and knowing the difference between a 2-1 buydown, a 3-2-1 buydown, and permanent points helps you evaluate which offer is actually best for your situation.

How a 2-1 Buydown Works

With a 2-1 buydown, your rate is reduced by 2% in year one, 1% in year two, then resets to your permanent note rate in year three. Example: if your note rate is 6.5%, you pay 4.5% in year one, 5.5% in year two, 6.5% from year three onward.

How a 3-2-1 Buydown Works

Same concept but the reduction starts at 3% below your note rate in year one. Example at 6.5% note rate: 3.5% year one, 4.5% year two, 5.5% year three, 6.5% from year four onward. This costs the builder more and is less common — but worth asking for on slower-moving inventory.

Permanent Buydown (Discount Points)

Paying discount points permanently reduces your note rate. Each point costs 1% of the loan amount and typically reduces the rate by 0.25%. On a $500K loan: 1 point = $5,000 cost, saves roughly $80/month. Break-even: $5,000 ÷ $80 = ~62 months (5 years). If you plan to stay or hold for 5+ years, permanent points often beat a 2-1 buydown.

Which Is Better?

• 2-1 buydown: Best if you expect to refinance within 2-3 years (common in higher-rate environments)
• Permanent points: Best if you plan to hold long-term and rates aren't expected to fall significantly
• Closing cost credit: Best if you're short on cash to close or plan to refinance soon anyway

How to Compare Offers

Don't compare rate buydowns in isolation — compare total cost of ownership. Take the builder's preferred lender offer AND an outside lender offer, calculate total payments over your expected holding period for each, then subtract any builder credits. The one with the lowest net cost wins.