Interest Rate Buydowns
What is an interest-rate buydown?
A buydown is a mortgage finance technique that allows you to pay extra points up front in return for a lower interest rate.
Benefits
A buydown can help make monthly mortgage payments more affordable, especially when interest rates are rising.
Types of buydowns
There are temporary and permanent buydowns.
A temporary buydown lowers the interest rate for a set period of time, while a permanent buydown lowers the interest rate for the entire life of the loan.
How it works
The borrower pays a one-time fee to the lender in exchange for a lower interest rate. Each point typically lowers the interest rate by about 0.25%. For example, if the borrower is borrowing $200,000, one point would cost $2,000.
State agencies often offer lower rate loans. But to qualify, borrowers usually must be a first-time homebuyer and meet income limits based on the median income level of their county.
Who can pay for a buydown
The buyer, seller, builder, or mortgage lender can pay for a buydown.