When your builder rate buydown expires: dealing with the real rate

Through 2022, 2023, and 2024, builders across California faced the same problem: rates had jumped, and buyers who could afford the house at 3 percent could not afford it at 7. Their answer was the financing incentive. Use the builder's affiliated lender and you got closing credits, upgrades, and very often a temporary rate buydown that made the first year or two genuinely cheaper. Roughly three quarters of builders were offering some version of this by 2024. If you bought a new home in that window, there is a good chance your loan started life on a teaser, and an equally good chance the teaser has now expired.

How the 2-1 buydown actually worked

The most common structure was the 2-1 buydown. The builder deposited money with the lender to subsidize your payment on a schedule:

• Year one: you paid as if your rate were 2 points below the note rate. A 7.25 percent loan felt like 5.25.
• Year two: the subsidy shrank to 1 point below. The same loan felt like 6.25.
• Year three onward: the subsidy is gone, and you pay the full note rate you actually signed for.

Nothing dishonest happened; the note rate was in your documents all along. But the payment you have been living with was not the real one, and the step-up lands right as the rest of homeownership, taxes, insurance, HOA dues, and in many newer communities Mello-Roos assessments, has also gotten more expensive. The full note rates from that era commonly sit in the high 6s to mid 7s. That is the number that matters now, because that is the number a refinance competes against.

The rate you have versus the rate you can get

Here is the good news hiding in this story: your note rate came from a captive situation. The incentive required the builder's lender, which meant that lender never had to win your business on price, and the buydown made the sticker rate feel painless enough not to shop. Once the teaser ends, none of that history matters. Your loan is just a loan, the market prices it like any other, and if current pricing beats your note rate by enough, the exit math is ordinary refinance math:

If your buydown is still active

Do not wait for the step-up to hurt before doing the math. Your break-even should be computed against the full note rate, because that is the rate you will hold for decades, not the subsidized one you hold this year. Sometimes the right move is to refinance while the subsidy is still running: you keep the remaining subsidy dollars in some structures, or simply accept losing a few subsidized months in exchange for locking a better long-term rate. Sometimes the right move is to ride the subsidy to its end and have the refinance ready the month the step-up lands. Which one wins depends on the spread, the remaining subsidy, and your timeline, and it is a computation, not a feeling.

The buydown was real money and worth taking. The mistake is treating the teaser as your rate. Your rate is the note rate, and the note rate can be beaten.

Team Wilburn's Refis

If you bought new construction anywhere in California in the last few years, tell us the note rate and when your subsidy ends. We run the exit math on a soft credit pull, including the keep-riding-the-subsidy case, and reach out only when the numbers genuinely clear. The builder chose your first lender. The second one is your call.