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• The share of loans with buydown points increased to 3.1% in 2024 from 2.2% in 2023, with activity peaking in December 2023.
• Mortgage buydown points were particularly popular in states such as Colorado, Utah, Hawaii, Arizona, and Idaho. Arizona saw the largest increase from 2023.
• States with a higher share of new home sales, such as Texas and Nevada, often see higher buydown activity.

Mortgage rates continue to pose affordability challenges for homeowners. The average 30-year fixed-rate mortgage reached a 19-year peak of 7.6% in October 2023 and hovered around 7% for 2024, according to Freddie Mac. In response to these high mortgage rates and stubbornly elevated home prices, some borrowers are exploring alternative methods to reduce homeownership costs, such as utilizing temporary mortgage buydown points. Usually, buydown points are paid by homebuilders, lenders, and sellers looking to attract homebuyers.

What is a mortgage buydown?

Buydown points temporarily lower monthly payments for the first year or two, making homeownership initially more affordable. However, mortgage buydown arrangements only translate to short-term savings — even if they are substantial.

For example, on a $500,000 loan with an interest rate of 7%, the monthly $3,330 payment can be reduced to $3,000 by lowering the short-term rate to 6%. Lowering the rate to 5% further reduces the monthly payment to $2,680. Although interest rates associated with mortgage buydown points are lower in the early years, they will gradually increase over time.

Mortgage buydown activity rose over the past two years. Figure 1 shows that the buydown share of all home purchase loans started increasing as the average 30-year fixed-rate mortgage crossed the 6% threshold.

Buydown activity peaked in December 2022,^[1] but as interest rates remained elevated, activity declined slowly until mid-2023. The share of mortgage buydowns rebounded in December 2023, reaching a new high.

The share of loans with buydown points increased to 3.1% in 2024, compared to 2.2% in 2023.

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Which states are most popular for temporary buydown of a mortgage?

Mortgage buydown points are particularly popular in certain western states. Figure 2 illustrates the share of home purchase loans with buydown points by state. A higher proportion of mortgage buydown activity is observed in Colorado (10.5%), Utah (9.3%), Hawaii (8.5%), Arizona (8.3%), and Idaho (7.4%).

Arizona saw the largest increase from last year, rising by 4.2 percentage points, followed by Colorado (up 3.2 percentage points), then Idaho and Texas (up 2.1 percentage points each).

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Note: The share represents a percentage of total purchase loans in a state originated between January 2024 and September 2024

In recent years, states in the West and the South recorded the highest proportion of new home sales relative to all sales. Figure 3 compares the top 10 states with most new construction sales to their share of loans with mortgage buydowns. Notably, seven out of the top 10 states with significant new home sales also demonstrated substantial buydown activity. It is likely that builders and sellers in these regions employed buydowns as a strategic measure to attract homebuyers in response to increasing interest rates.

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Note: For year 2024 data includes between January to September only

Most states with the highest rates of buydown activity also experienced significant home price growth over the last few years, which has made affordability even more difficult to attain in many markets. Although buydown loans are a smaller part of the mortgage market, they can make homeownership more accessible for some buyers. By reducing initial monthly payments, they can help individuals with limited budgets, such as first-time homebuyers, enter the housing market.