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Temporary Buydowns: What Happens to Unused Funds If You Sell or Refinance Early? - 9/17/2025

A temporary buydown is a great tool to help ease into homeownership with lower initial monthly payments, especially helpful in a high-rate environment. It allows you to enjoy reduced payments in the first one to three years of the loan, offering financial flexibility as you settle into your home.

With a buydown, the upfront cost is used to offset the difference between your actual mortgage payment (based on the full note rate) and the reduced payment you're allowed to make under the buydown terms. That difference is funded by a lump sum, typically paid by the seller, builder, or sometimes the borrower, and held in an escrow account by the lender or servicer.

For example, in a 2-1 buydown, the lender still loans the full amount at the note rate for the entire term of the mortgage. However, for the first year, the borrower makes payments as if the rate were 2% lower, and in the second year, 1% lower. The escrow account makes up the difference between what the borrower pays and what the loan actually requires, ensuring the lender receives the full payment due.

But What If You Sell or Refinance Before the Buydown Period Ends?

Here's the good news: If you sell or refinance the home before the buydown period is over, the unused portion of that escrow fund doesn't disappear, it typically comes back to you.

Since the funds were set aside to reduce your mortgage payments and you're no longer making those payments, the remaining balance in the buydown account is credited back to you at closing. It's your money, or a seller or builder credit given on your behalf, and once it's no longer needed for payment support, it returns to you.

It's always wise to confirm the terms with your lender or loan servicer, but most buydown agreements include this provision.

The Bottom Line

A temporary buydown offers upfront savings and long-term flexibility. And if your plans change, whether you sell or refinance early, you won't lose the benefit of the unused funds. It's just another way this strategy helps you manage your mortgage more efficiently, while keeping more money in your pocket.

Cynthia Stanley ABR, CDPE, CRS, e-PRO, GRI, RFC, RSPS Sea Oats Real Estate North Myrtle Beach, SC (843) 222-2687 SC 27524 NC 167215 A full-time real estate professional since 1988 and a resident of North Myrtle Beach since 1996 enable Cynthia to fully understand the market, the greater Myrtle Beach area known as the Grand Strand. Her business territory includes Horry & Georgetown Counties in South Carolina as well as Brunswick and Columbus Counties in North Carolina. Whether you are looking for a beach retreat close to the ocean, an oceanfront investment or a primary residence, Cynthia has the knowledge and expertise to help you. Contact Me Visit my Website Send a Referral Subscribe to Newsletter