Buyers who rushed to snap up mortgage buydowns a few years ago are now paying for it — why so many got burned

In recent years, many American homebuyers have snatched up new properties with the help of mortgage "buydowns." These incentives from builders temporarily lowered interest rates while the sticker price remained elevated.

What seemed like a workaround for high borrowing costs is becoming a cautionary tale as the housing market softens and rates remain high.

Shop Top Mortgage Rates

A quicker path to financial freedom Learn More

Personalized rates in minutes Learn More

Your Path to Homeownership Learn More

Powered by Money.com - Yahoo may earn commission from the links above.

Must Read

Thanks to Jeff Bezos, you can now become a landlord for as little as $100 — and no, you don't have to deal with tenants or fix freezers. Here's how I'm 49 years old and have nothing saved for retirement — what should I do? Don't panic. Here are 6 of the easiest ways you can catch up (and fast) Dave Ramsey warns nearly 50% of Americans are making 1 big Social Security mistake — here’s what it is and 3 simple steps to fix it ASAP

How buydowns worked and failed

Many buyers opted for one of two primary types of buydowns offered by builders: the permanent buydown and temporary or so-called “2‑1 buydown” [1].

With a permanent buydown, the builder pays approximately 5 to 6% of the sale price to lower the interest rate on the 30-year mortgage by one or two points, which translates into substantial long-term savings for buyers.

The more common temporary or “2‑1 buydown” reduces the rate by 2% in the first year and 1% in the second, before reverting to market levels. This offered fresh homeowners breathing room on their monthly payments — as long as rates didn’t stay high.

But for many who took that bet in 2022–23, the gamble has gone sour. Mortgage rates remain elevated, hovering in the mid‑6% range according to the Federal Reserve Bank of St. Louis, despite occasional dips. With the promised rate relief gone, these buyers are now facing full payments on homes they may struggle to afford or sell.

Read more: Rich, young Americans are ditching stocks — here are the alternative assets they're banking on instead

What’s driving the pain?

Builders leaned heavily on buydowns to keep new-home sales afloat during the market cooldown.

For example, PulteGroup increased incentives per sale from a modest $18,000 to $21,000 to over $52,000 on a $600,000 home [2]. This method offers a less visible yet effective alternative to outright price cuts.

However, that advantage has waned: buyers are realizing they might be “overpaying” for a temporary sweetener only to now be stuck with higher base prices even as market conditions deteriorate.

Market data backs this up. New- and existing-home sales remain sluggish thanks to high rates. New-home sales are still down, sliding by 8.2% year-over-year [3].

Story Continues

Housing wealth isn’t growing as quickly, with just 1.9% growth as of June, year-over-year and marking the slowest growth rate since the summer of 2023 — all while inventories are climbing to near pre-pandemic levels [4].

In some regions, new homes are now selling for $19,000 to $28,000 less than comparable existing homes [5]. Moody’s economist Mark Zandi warns that persistent mortgage rates near 7% could further drag the role of housing in the broader U.S. economy [6].

Are Americans Being Forced to Sell?

Many homeowners are indeed feeling the pressure to sell their homes.

Those who bought with buydowns now face “buyer’s remorse,” especially if relocation or life changes prompt a move. With limited demand and high competition — including from builders offering new incentives — these sellers often have to lower prices or offer their own buydowns to attract buyers.

Tips for current homebuyers:

Don't bet on future rate drops: Current forecasts [7] project mortgage rates will remain above 6% through 2025 and beyond. Long-term mortgage rates follow Treasury yields, not just Fed policy. Run complete affordability calculations: Beyond mortgage payments, factor in the actual cost of homeownership, which includes closing costs, maintenance (1-4% of home value annually), insurance, taxes and unexpected repairs. Be cautious with temporary incentives: A buydown that expires can lead to sudden payment increases and buyers must be able to sustain the full rate in the long term. Take the long view: Buying is most beneficial if you plan to stay in the residence (and community) for at least 5 years [8] which is long enough to build equity and weather short-term rate volatility. Evaluate other financing tools: In today's rate environment, ARMs (adjustable-rate mortgages) and all-cash offers can sometimes offer advantages, primarily when used strategically in conjunction with local data.

The buydown boom helped sustain the new-home market through the rate shock. As that safety net unravels, more buyers are discovering they’ve paid a premium for relief that didn’t last.

What to read next

Robert Kiyosaki warns of a 'Greater Depression' coming to the US — with millions of Americans going poor. But he says these 2 'easy-money' assets will bring in ‘great wealth’. How to get in now Want an extra $1,300,000 when you retire? Dave Ramsey says this 7-step plan ‘works every single time’ to kill debt, get rich in America — and that ‘anyone’ can do it Commercial real estate has beaten the stock market for 25 years — but only the super-rich could buy in. Here's how even ordinary investors can become the landlord of Walmart, Whole Foods or Kroger The biggest myth in real estate investing? That you need big money. Here are 5 ways to grow your wealth — starting with just $10

Stay in the know. Join 200,000+ readers and get the best of Moneywise sent straight to your inbox every week for free. Subscribe now.

Article sources

At Moneywise, we consider it our responsibility to produce accurate and trustworthy content people can rely on to inform their financial decisions. We rely on vetted sources such as government data, financial records and expert interviews and highlight credible third-party reporting when appropriate.

We are committed to transparency and accountability, correcting errors openly and adhering to the best practices of the journalism industry. For more details, see our editorial ethics and guidelines.

[1]. Business Insider. “The mortgage buydown backfire”

[2]. Resi Club. “Spreading housing market softness sees this $23 billion builder offer $50k incentives per sale”

[3]. Yahoo!Finance. “New US home sales fall as high borrowing costs stifle housing demand”

[4]. S&P Global. “S&P Cotality Case-Shiller Index Records Annual Gain in June 2025”

[5]. New York Post. “New homes are selling at sharp discounts — costing $20K less than existing ones”

[6]. MarketWatch. “The housing market is sending a stark warning to the U.S. economy, Moody’s economist says”

[7]. Yahoo!Finance. “When will mortgage rates go down? Rates stay flat for the second straight week”

[8]. Moneyning. “The five-year rule for buying a house”

This article provides information only and should not be construed as advice. It is provided without warranty of any kind.

View Comments