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Buydown

Buydown

Obtaining a lower interest rate by paying additional points to the lender.


A Buydown is a mortgage financing technique used by buyers to lower the amount of interest charged on their loan in the short-term – or even the long-term. A 2-1 Buydown, for example, allows a homebuyer to pay a discounted rate of interest on their mortgage for the first two years and gradually build up to the normal rate of interest. With a 3-2-1 Buydown the buyer pays the reduced rate of interest for the first three years, the 2nd year at a slightly lower rate, and then the normal rate in the 3rd year. Buydowns are attractive to buyers, as they allow them to monetize a portion of the monthly payments and reinvest it elsewhere. Buydowns have also been utilized by sellers to attract buyers who might otherwise be unable to afford the asking price of a property.

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