Permanent Buydown Calculator

Loan Amount ($):

Annual Interest Rate (%):

Loan Term (years):

Buydown Points (%):

Monthly Payment with Buydown ($):

Total Interest Paid with Buydown ($):

A Permanent Buydown Calculator is a tool that helps you figure out the cost savings when you buy down the interest rate on a loan for its entire term. This can be especially useful if you're taking out a large loan and want to reduce your monthly payments. Let's dive into how this calculator works, its purpose, and how you can use it effectively.

What is a Permanent Buydown Calculator?

A Permanent Buydown Calculator helps you determine the long-term savings you can achieve by paying extra money upfront to lower your loan's interest rate. This process is known as "buying down the rate." By paying points upfront, you can reduce the interest rate on your loan, resulting in lower monthly payments over the loan's term.

How Does It Work?

The calculator requires the following inputs:

Loan Amount (P): The total amount of the loan.
Annual Interest Rate (r): The annual interest rate before any buydown.
Loan Term (n): The number of years the loan will be repaid over.
Buydown Points (B): The number of points (expressed as a percentage of the loan amount) used to buy down the interest rate.

Using these inputs, the calculator performs several calculations to determine the monthly payment and total interest paid with the buydown.

Key Formulas:

Monthly Interest Rate (i):𝑖=𝑟12×100i=12×100r
Effective Interest Rate after Buydown (r'):𝑟′=𝑟−𝐵r′=r−B
Monthly Payment with Buydown (M'):𝑀′=𝑃×𝑖×(1+𝑖)𝑛×12(1+𝑖)𝑛×12−1M′=(1+i)n×12−1P×i×(1+i)n×12
Total Interest Paid with Buydown (T'):𝑇′=𝑀′×𝑛×12−𝑃T′=M′×n×12−P

Example Calculation

Let's use an example to illustrate how the calculator works.

Loan Amount (P): $200,000
Annual Interest Rate (r): 5%
Loan Term (n): 30 years
Buydown Points (B): 1%

Step-by-Step Calculation:

Monthly Interest Rate (i):𝑖=512×100=0.004167i=12×1005=0.004167
Effective Interest Rate after Buydown (r'):𝑟′=5−1=4r′=5−1=4
Monthly Payment with Buydown (M'):𝑀′=200,000×0.004167×(1+0.004167)30×12(1+0.004167)30×12−1=954.83M′=(1+0.004167)30×12−1200,000×0.004167×(1+0.004167)30×12=954.83
Total Interest Paid with Buydown (T'):𝑇′=954.83×30×12−200,000=143,739.48T′=954.83×30×12−200,000=143,739.48

Information Table

Parameter	Value
Loan Amount (P)	$200,000
Annual Interest Rate (r)	5%
Loan Term (n)	30 years
Buydown Points (B)	1%
Monthly Interest Rate (i)	0.004167
Effective Interest Rate (r')	4%
Monthly Payment with Buydown (M')	$954.83
Total Interest Paid with Buydown (T')	$143,739.48

Conclusion

A Permanent Buydown Calculator is a valuable tool for anyone considering buying down their loan's interest rate. By understanding the inputs and calculations, you can make informed decisions that could save you a significant amount of money over the life of your loan. Using the example provided, you can see how a small reduction in the interest rate can lead to substantial savings in monthly payments and total interest paid. This calculator is particularly useful for homeowners and investors looking to optimize their loan terms and manage their finances more effectively.