Buydown means a method of getting a lower rate of interest in case of a borrower, through the payment of discount points at the closing. Discount points also indicate prepaid interest or mortgage points, and they are one-time charges which are upfront payments. To take discount points into account, the rate of interest is lesser for the loan duration.
A buydown is a technique of financing loans/mortgages, which helps buyers get lower rates of interest throughout a minimum of the first few mortgage/loan years, and possibly the whole lifecycle. For instance, there is a 2-1 buydown which is a type of buydown in mortgages that enable buyers to save on rates of interest for the first couple of years in a loan. The buy-downs may also come with a structure of 3-2-1 too.
In the real estate and home financing segment, the buydown enables borrowers to get a lower/reduced rate of interest, while a mortgage is being taken out. The buydown may save money for the homebuyers on the interest that is paid out throughout the loan lifetime/lifecycle. The buydown may cover buying discount points against mortgages/loans, necessitating payments of charges upfront. The terms and conditions of the buydown can be structured in diverse formats for mortgages.
