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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.

JACK KOUMBIS ABR, AHWD, GREEN, RENE, SFR, SRS KELLER WILLIAMS TOWN LIFE TENAFLY, NJ (201) 925-8825 LICENSED BROKER ASSOCIATE NJ, LICENSED BROKER OF RECORD NEW YORK JACK KOUMBIS started working at an early age in his family owned restaurants. His passion for the hospitality industry and his service mentality led him many successes over his 40+ year career. Operating multi units in both New York and New Jersey with hundreds of employees, Jack has a tremendous business background which serves him well as a Realtor Licensed in New York and New Jersey. In addition to his 40+ years of working in restaurants, private clubs, and hotels, Jack has served for more than 13 years on the Board of Directors of the New Jersey Restaurant and Hospitality association and is a Past Chairman of the Board. In 2015, Jack changed careers and became a Licensed Real Estate Agent and is now with the Keller Williams Town Life office located in Tenafly, NJ. Living in Bergen County for the last 30 years has given Jack a unique perspective, first as resident of a Fort Lee High Rise and later as a homeowner in the Northern Valley, he has a firm grasp on the Local Real Estate Market. His professionalism and service mentality give him a unique skill set necessary to care for the most discerning clients. His many years of operating multiple successful businesses give him the acumen to oversee your transaction from start to finish. He brings value to the equation, that other realtors may not, and offers more than just the normal function of a Real Estate Agent but will act as your fiduciary seeing that your trust is rewarded and all of your needs are met. Contact Me Visit my Website Send a Referral Subscribe to Newsletter