Feeling priced out by today’s rates? You’re not alone. Many Saint Johns buyers are turning to mortgage rate buydowns to make payments more manageable while still moving forward on a home they love. In this guide, you’ll learn how 2-1, 3-2-1, and permanent buydowns work, how to compare costs, and how to use builder incentives in master-planned communities to your advantage. Let’s dive in.
What is a mortgage rate buydown?
A mortgage rate buydown lowers your interest cost in exchange for an upfront payment. You or the seller/builder fund it at closing, and you get a lower monthly payment.
There are two main types you’ll see in Saint Johns:
- Temporary buydown: The rate is reduced for the first years of the loan, then returns to the note rate. Common options include 3-2-1 and 2-1 structures.
- Permanent buydown (discount points): You pay points at closing to reduce the interest rate for the life of the loan.
How buydowns work
- Temporary buydowns: A subsidy account is funded at closing. The lender uses it to credit part of your interest during the buydown period. Your monthly payment is lower at first, then steps up until it reaches the note rate.
- Permanent buydowns: You pay discount points at closing. One point equals 1% of the loan amount. The exact rate reduction per point varies by lender and market.
- Who pays: You, the seller, the builder, or a mix. In new construction, builders often fund buydowns to help buyers qualify and to move inventory.
Temporary vs. permanent: which fits your plan?
Short-term relief: temporary 2-1 or 3-2-1
Temporary buydowns work well if you want payment relief for the first few years. They can also help with qualifying if the lender uses the reduced payment for underwriting. If you expect income to rise, plan to refinance, or may move in a few years, this can be a smart fit.
Long-term savings: permanent points
If you plan to keep the mortgage for many years and have cash at closing, discount points can lower your payment and total interest over the life of the loan. Your break-even is the upfront cost divided by monthly savings.
Example math you can use
Below are simple, illustrative examples. Real lender pricing will vary.
2-1 temporary buydown on a $400,000 loan at a 7.00% note rate:
- Year 1 at 5.00%: payment about $2,147
- Year 2 at 6.00%: payment about $2,398
- Years 3 and on at 7.00%: payment about $2,661
- Total savings in the first two years is roughly $9,324. If a builder funds a $10,000 buydown, your early cash flow improves and qualification may be easier.
Permanent buydown with 2 points on a $400,000 loan:
- Pay $8,000 at closing for an estimated 0.5% rate reduction (example only)
- 7.00% to 6.50% lowers the payment from about $2,661 to $2,528
- Monthly savings about $133; break-even is around 5 years
Saint Johns builder incentives to watch
In master-planned areas across St. Johns County, such as Nocatee, Palencia, Durbin Crossing, and Beachwalk, multiple builders compete for buyers. That competition often leads to incentives like temporary buydowns, paid discount points, closing cost credits, design upgrades, and rate lock credits.
Builders frequently package a 2-1 or 3-2-1 buydown with other perks. Many tie incentives to using a preferred or affiliated lender. You should request the details in writing, understand how the incentive is funded, and compare it to an equivalent price reduction or closing cost credit.
How to compare offers
Use a simple framework to decide what helps you most:
- Gather key numbers.
- Loan amount, note rate without buydown, buydown cost, who pays, and loan term.
- Include taxes, insurance, HOA fees, and any mortgage insurance in your monthly comparison.
- Run the break-even.
- Cost of buydown divided by monthly savings equals months to recoup. Compare to how long you plan to keep the loan.
- Decide on fit.
- Expect to refinance or move within a few years? A temporary buydown may be better.
- Planning to hold the loan long term with cash available at closing? Permanent points may win.
- Weigh local costs and tax factors.
- Property taxes and HOA dues can be meaningful in master-planned communities. If you will occupy the home, ask about homestead exemptions in St. Johns County. Florida has no state income tax, which affects overall cash flow.
Negotiation plays that work locally
- Ask for a choice. Request the dollar value for a temporary buydown, paid points, a closing cost credit, and a price reduction. Compare outcomes side by side.
- Target the right homes. Near-complete inventory or model homes may have stronger incentives.
- Shop competing communities. Use offers from nearby builders to improve your terms.
- Understand lender ties. If incentives require a preferred lender, get the specifics in writing and see if incentives can be combined.
- Watch the net price. Sometimes a lower purchase price plus buyer-paid points beats a “builder-funded” buydown that was already priced into the home.
Risks and fine print
- Payment step-ups. Temporary buydowns raise your payment after year one or two. If you cannot refinance or move, be ready for the higher note payment.
- Qualification policies. Some lenders qualify you using the reduced buydown payment, others use the full note rate. Confirm before you write the offer.
- Program rules. Conventional, FHA, VA, and USDA loans handle concessions differently. Ask your lender how a buydown counts against seller concession limits.
- PMI and escrows. A buydown does not change your loan-to-value. Mortgage insurance and escrowed items still apply based on loan terms and insurer rules.
- Tax treatment. Seller-paid prepaid interest and points can have specific tax rules. Confirm with your tax advisor how this applies to you.
Quick checklist for Saint Johns buyers
- Know if the buydown is temporary or permanent and for how long.
- Get the buydown amount, funding source, and payment schedule in writing.
- Ask if the reduced buydown payment will be used for qualification.
- Calculate the break-even and compare to your expected time in the home.
- Compare the value of a buydown vs. a price reduction or closing cost credit.
- Confirm the Closing Disclosure shows who pays what.
- Review potential tax impacts with a professional.
Next steps
If you want flexibility early on, a temporary buydown can create breathing room while you settle into your new home. If you are focused on long-term savings, permanent points can lower your lifetime interest. The right answer depends on your timeline, cash at closing, and the incentives available in your target community.
Ready to run the numbers on a Saint Johns new build or resale? Talk with The Newcomer Group to compare scenarios and negotiate the right mix of incentives for your goals.
FAQs
What is a 2-1 vs. 3-2-1 buydown in Saint Johns?
- A 2-1 lowers your rate by 2% in year 1 and 1% in year 2, then the note rate applies; a 3-2-1 lowers it by 3%, then 2%, then 1% over the first three years.
Who usually pays for a buydown on new construction?
- Builders often fund temporary buydowns or points as part of an incentive package, sometimes tied to using a preferred lender.
How do I know if discount points are worth it?
- Divide the upfront cost by the monthly savings to find your break-even, then compare to how long you plan to keep the mortgage.
Will a temporary buydown change my note rate forever?
- No; it lowers payments for a set period, then payments step up to the note rate, while permanent points reduce the note rate for the life of the loan.
Can a buydown help me qualify for the loan?
- Sometimes; if the buydown is fully funded, some lenders will qualify you using the reduced payment, but policies vary so confirm early.
Do HOA fees and property taxes affect my buydown decision?
- Yes; include principal and interest, taxes, insurance, HOA dues, and any mortgage insurance to understand true monthly affordability.
