Seller Credit vs Price Reduction vs Rate Buydown Tradeoff Tool

How to use this seller credit vs price reduction vs rate buydown tool

This calculator lets you compare three common seller concession strategies side by side:

• Seller credit applied to the buyer’s closing costs.
• Price reduction that permanently lowers the purchase price and loan amount.
• Rate buydown funded with discount points or a temporary buydown.

It is designed for real estate agents, lenders, buyers, and sellers who want to see how each option affects buyer monthly payment and seller net proceeds before deciding which concession to offer or request.

Key inputs and what they mean

Transaction basics

• List Price ($) – The original contract or list price before any concessions.
• Seller Closing Costs (% of Price) – Estimated seller-paid closing costs as a percentage of the purchase price (for example, 1.5% = 0.015 × price).
• Buyer Down Payment (%) – Buyer’s down payment as a percentage of the purchase price.
• Market Interest Rate (%) – The buyer’s standard mortgage rate without any buydown.
• Loan Term (Years) – Length of the loan in years (commonly 30, 25, 20, or 15).

Scenario inputs

• Seller Credit Amount ($) – A dollar amount the seller contributes toward buyer closing costs or prepaid items. The sale price stays the same; the buyer brings less cash to close.
• Price Reduction Amount ($) – A dollar reduction in the contract price. This lowers the buyer’s loan amount and slightly reduces the monthly principal and interest payment.
• Discount Points Funded (%) – Percentage of the loan amount used to buy down the interest rate ("points"). One point is typically 1% of the loan amount.
• Rate Reduction per Point (%) – Approximate rate reduction for each point paid. Actual lender pricing varies, but this gives a reasonable estimate.
• Temporary Buydown Cost ($) – Total cost paid up front (usually by the seller or builder) to fund a temporary buydown such as a 2-1, 1-0, or 3-2-1 buydown.
• Temporary buydown structure – Chooses how many percentage points the rate is reduced in each of the early years (for example, a 2-1 buydown is 2% lower in year one and 1% lower in year two).

After you enter your assumptions, select the buydown structure and click Run Tradeoff Analysis. The results panel will display the buyer’s monthly payment and seller net proceeds for each strategy so you can compare them side by side.

How the payment is calculated

The calculator uses the standard fixed-rate mortgage payment formula for each scenario. For a loan amount L, monthly interest rate r, and total number of monthly payments n, the principal-and-interest payment M is:

Where r is the annual interest rate divided by 12 and n is the loan term in years multiplied by 12.

Interpreting the comparison results

Once the analysis runs, focus on three main outputs for each scenario:

• Buyer loan amount – How much the buyer actually borrows after any price reduction and down payment.
• Buyer monthly principal and interest – The ongoing payment impact.
• Seller net proceeds – The seller’s cash at closing after closing costs and any credits or buydown costs they fund.

Use these results to answer questions like:

• “How much does a $10,000 seller credit lower my buyer’s cash to close compared with a $15,000 price reduction?”
• “If the seller funds 1.5 points, how does the lower rate change the payment over the life of the loan?”
• “Is the temporary buydown worth the cost for a buyer who expects to refinance or move within a few years?”

Worked example

Suppose you model the following scenario:

• List price: $500,000
• Buyer down payment: 10%
• Market rate: 7.00%
• Loan term: 30 years
• Seller credit: $10,000
• Price reduction: $15,000
• Points funded: 1.5%
• Rate reduction per point: 0.25%
• Temporary buydown cost: $12,000 (2-1 buydown)

At a 10% down payment, the base loan amount is $450,000. A $15,000 price reduction lowers the loan to $436,500, resulting in a slightly lower monthly payment and slightly lower seller net. Funding 1.5 points reduces the rate from 7.00% to approximately 6.625%. The monthly payment drops more than with the price reduction, but the seller nets less because they are paying points up front. The temporary buydown leaves the note rate at 7.00% but reduces the buyer’s payment significantly in the first two years, at the cost of a one-time buydown fee.

This type of example can help you explain the tradeoffs to clients: permanent price changes tend to benefit buyers modestly each month but forever, while rate buydowns can produce larger monthly savings sooner, especially at higher rates.

Side-by-side comparison of strategies

When each option may be more attractive

Seller credits

Seller credits are often most valuable when the buyer’s main constraint is cash to close. They can help cover lender fees, prepaid taxes and insurance, and even discount points in some programs. The monthly payment may not change much, but the buyer’s upfront cost drops.

Price reductions

Price reductions permanently decrease the loan amount, which slightly lowers both the monthly payment and total interest paid over time. They can also help if you are concerned about the property appraising at the contract price. However, in high-rate environments, the same concession applied to a rate buydown may create more immediate payment relief.

Rate buydowns (permanent vs temporary)

Permanent buydowns (via discount points) trade an up-front cost for a lower interest rate over the life of the loan. This often provides stronger monthly payment relief than a similar-size price reduction, especially at higher loan amounts.

Temporary buydowns such as 2-1 or 3-2-1 structures lower the interest rate only for the first one to three years. They can be helpful when buyers expect income growth or a refinance. The note rate and payment step up after the buydown period, so it is important to review both the initial and final payments.

Assumptions and limitations

• The calculator focuses on principal and interest only. It does not include property taxes, homeowners insurance, mortgage insurance, HOA dues, or other recurring costs.
• Seller closing costs, credits, and buydown costs are simplified and may not match any specific state, lender, or program rules.
• "Rate reduction per point" is an approximation. Actual pricing depends on market conditions, loan type, credit score, and lender-specific rate sheets.
• Temporary buydown structures are modeled as typical examples and do not reflect every possible product design.
• Results are estimates for educational purposes only and are not a loan offer, credit decision, or financial advice.

Buyers and sellers should review scenarios with a licensed loan originator or financial professional before making final decisions.

Frequently asked questions

Is a seller credit or a price reduction better for my buyer?

If a buyer is short on cash, a seller credit often helps more because it reduces the money needed at closing. If cash is not a problem and the buyer plans to hold the property long term, a price reduction or rate buydown may provide more lifetime savings.

How do discount points affect the interest rate?

Discount points are prepaid interest. Each point typically costs 1% of the loan amount and reduces the rate by a fraction of a percent. The "Rate Reduction per Point" input lets you approximate that relationship for your quote.

What is a 2-1 or 3-2-1 temporary buydown?

In a 2-1 buydown, the interest rate is 2 percentage points lower in year one and 1 point lower in year two, then returns to the full note rate. A 3-2-1 buydown is 3 points lower in year one, 2 in year two, and 1 in year three. The up-front buydown cost covers the difference in interest for those early years.