If you are shopping for new construction in Austin right now, you have probably seen the words “rate buydown” on a builder’s website. With mortgage rates back above 7 percent, a buydown is one of the most effective tools a buyer has, because the builder pays to lower your rate while the home keeps its full value. Here is how buydowns work, with current data and a real payment example.
Why Builders Are Offering Them
Mortgage rates have moved the wrong way this fall. Freddie Mac’s weekly survey put the 30-year fixed rate at 7.28% as of October 1, up from 6.34% a year earlier. Builders feel it. The NAHB/Wells Fargo Housing Market Index fell to 32 in September, tied for the lowest reading in over three years, and 66% of builders reported using sales incentives, up from 63% in August. Another 38% cut prices, by an average of 6%. Locally, Spyglass Realty reports that incentives run strongest in outer-metro communities such as Leander, Georgetown, Kyle, Buda, and Pflugerville, while Mueller, Cedar Park, and Round Rock generally offer fewer concessions.
Temporary vs. Permanent Buydowns
A buydown is a payment from the builder, usually made at closing, that lowers your interest cost. There are two kinds. A permanent buydown pays discount points to lower your rate for the life of the loan. One point, equal to 1% of the loan amount, typically lowers the rate by about 0.25%, according to MGIC. A temporary buydown puts money into an account that covers part of your payment for the first one to three years. The most common structures are a 2-1 buydown, where the rate is 2 points lower in year one and 1 point lower in year two, and a 3-2-1 buydown, which steps down over three years. Temporary buydowns are capped at 36 months, and lenders qualify you at the full note rate, not the reduced one.
What It Looks Like in Dollars
Take a $450,000 home with 10 percent down, which leaves a $405,000 loan, and a note rate of 7%. Without a buydown, principal and interest comes to about $2,694 a month. With a builder-paid 2-1 buydown, your first-year payment drops to about $2,174 and your second-year payment to about $2,428, before returning to $2,694 in year three. That is roughly $9,400 of savings over two years, and the builder pays for it, not you. These figures cover principal and interest only and exclude taxes, insurance, and HOA dues.
Buydown or Price Cut?
Now compare that to a price cut of the same $9,400. It lowers your loan by about $8,500 and your payment by roughly $57 a month. The buydown cuts your payment by more than $500 a month in year one, and it keeps the home’s recorded sale price at its full value. That matters because the price on your closing documents becomes the comparable that appraisers and future buyers use, for your home and your neighbors’, so a sale at full price protects what your home is worth when you eventually sell. Builders favor buydowns for the same reason. The tradeoff to know is that a temporary buydown steps up after year two or three, so plan your budget around the full payment, and a permanent buydown avoids that. A price cut still lowers your payment for the whole loan, though by far less in the early years, and if rates fall, you can refinance out of the higher rate later. At Caledonia, you do not have to pick blind, because we can run both versions on the same home so you can compare the payments side by side.
What to Ask Before You Sign
Buydowns are usually the stronger offer, so the best questions are about how the numbers play out for your situation. Ask what your payment becomes the month a temporary buydown ends, and make sure your budget works at that number, not the introductory one. Ask about the deadline to contract or close, since incentives often come with an expiration date. Ask which homes in the community qualify, because the best rates and price reductions usually apply to select homes. Finally, ask your loan officer to run the buydown and the price reduction side by side on the home you are considering, since the better choice depends on your down payment, how long you plan to stay, and the loan program you qualify for.
At Caledonia Builders, we build semi-custom homes across the Austin area, from The Grove at Blackhawk in Pflugerville to build-on-your-lot projects. On select homes right now, we offer both a sales price reduction and a rate buydown, and we can structure whichever fits you best. We are currently running rates as low as 4.25%. Qualifying for these rates depends on your credit, down payment, and loan program, as well as the specific home. If you are interested, contact us and we will walk through the numbers on a specific home with you.
Rates and terms are subject to change without notice and to buyer qualification, credit approval, and loan program requirements. Advertised rates and incentives apply to select homes only and may require use of a preferred lender. Not all buyers will qualify. This is not a commitment to lend. Contact us for current details.
Works Cited
Freddie Mac rate figures as reported in “US Mortgage Rates Climb Further in October.” Trading Economics, tradingeconomics.com/united-states/30-year-mortgage-rate/news/588887.
Mortgage News Daily. “Builder Confidence (NAHB HMI).” Mortgage News Daily, 18 Sept. 2026, www.mortgagenewsdaily.com/news/09182026-builder-confidence-nahb-hmi.
MGIC. “Understanding Buydowns.” MGIC, 1 Nov. 2022, pages.mgic.com/rs/881-WYO-555/images/Handout-UnderstandingBuydowns_11.01.22.pdf.
Spyglass Realty. “Austin Builder Incentives Guide for Homebuyers.” Spyglass Realty, 3 July 2026, www.spyglassrealty.com/blog/austin-builder-incentives-guide-for-homebuyers.
Simon Cruz
Oct 15, 2026
