What is a rate buydown?

A rate buydown is when a mortgage broker uses part of their commission to reduce the interest rate offered to the client. The "cost" is the difference in monthly payments (or total interest) between the original lender rate and the bought-down rate over the term.

How does cashback affect the effective rate?

When a broker gives the client a cashback, the client can apply it directly against the mortgage principal on day 1. This reduces the outstanding balance, meaning a larger portion of each subsequent payment goes to principal rather than interest — the savings compound over the entire term.

Which is better for the client — buydown or cashback?

It depends on the term. A buydown saves more on longer terms because the reduced rate compounds over more months. Cashback is an immediate benefit. Use this calculator to compare both scenarios — if the effective rate with cashback is lower than the bought-down rate, cashback may be more beneficial.

Does the buydown cost change with amortization?

Yes. A longer amortization means lower monthly payments but a larger portion of each payment goes to interest, so the total interest difference between the two rates over the term is greater — making the buydown cost higher. A shorter amortization reduces the buydown cost because you pay down principal faster.

Back to Home Broker Tool

Rate Buydown Calculator

Calculate the cost to buy down a mortgage rate across different terms and amortizations. See how cashback affects the client's effective rate.

Calculate Buydown Cost

Buydown Cost

Per term comparison

Effective Rate

After cashback analysis

Multi-Term View

1 to 5 year comparison

Mortgage Details

Enter the mortgage amount and rates to see buydown costs across all terms.

Mortgage Amount

Lender Rate (Before Buydown)

Target Rate (After Buydown)

Term

Amortization

Cashback Analysis (Optional)

Cashback Amount to Client

Enter cashback amount to see the client's effective rate

Cashback as % of Mortgage

0.00%

Buydown Cost Comparison

Cost difference across all terms for selected amortization

Uses Canadian semi-annual compounding

Term	Monthly @ Lender Rate	Monthly @ Target Rate	Monthly Savings	Buydown Cost (Term)	Interest Saved (Term)	Effective Rate w/ Cashback

Rate Reduction

0.50%

from lender rate to target rate

5-Year Buydown Cost

total interest difference over term

Effective Rate (5-Year w/ Cashback)

—

client's true cost of borrowing

How Effective Rate with Cashback Works

Apply Cashback to Principal

The client receives cashback and applies it directly to the mortgage principal on day 1, reducing the outstanding balance.

Same Payment, Smaller Balance

The contractual payment stays the same, but now it's applied against a smaller balance — more goes to principal each month, compounding savings.

Solve for Effective Rate

Find the rate that, on the original principal, would produce the same total interest — that's the client's true effective borrowing cost.

Frequently Asked Questions

Need Help with Rate Buydowns?

Our team can help you optimize your commission split between buydowns and cashback for the best client outcome.

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