(redirected from Buy-Downs)
Also found in: Wikipedia.


A lump sum payment made to the creditor by the borrower or by a third party to reduce the amount of some or all of the consumer's periodic payments to repay the indebtedness. In the context of project financing, refers to a one-time payment out of liquidated damages to reflect cash flow losses from sustained underperformance.


A prepayment on a loan, especially a mortgage, that reduces monthly payments thereafter. A buydown may temporarily reduce payments, for example, by reducing the loan's interest rate for a certain period. On the other hand, a permanent buydown reduces the interest rate by a lesser amount for the life of the loan. A buydown is often made by a third party, but this is not always the case.


When you make an up-front cash payment to reduce your monthly payments on a mortgage loan, it's called a buydown.

In a temporary buydown, your payments during the buydown period are calculated at a lower interest rate than the actual rate on your loan, which makes the payments smaller.

For example, if you prepay $6,000, your rate might be reduced by a total of six percentage points, or one percent for each thousand dollars, spread over three years.

Instead of an 8% rate in the first year, it would be 5%. In the second year, it would be 6%, and in the third year 7%. On a $100,000 loan with a 30-year term, a reduction from 8% to 5% would reduce your monthly payments in the first year from about $734 to about $535.

The extra cash you prepaid would be used to make up the difference between the amounts due calculated at the lower rates and the actual cost of borrowing -- in this case about $200 a month in the first year. Then, in the fourth year, you would begin to pay at the actual loan rate and your payments would increase.

In a permanent buydown, which is less common, your rate might be reduced by about 0.25% for each thousand dollars, or point, you prepaid, but the reduction would last for the life of the loan.

You might choose to do a buydown if you had extra cash at the time you were ready to buy, but a smaller income than would normally allow you to qualify to buy the home you want.

In most cases, lenders require that your housing costs be no more than 28% of your income. You might be able to reach that level if your initial payments were less at the time of purchase. In other cases, a home builder who is having trouble selling new properties might offer buydowns through a local lender to encourage reluctant buyers to take advantage of lower payments in the first years they own their homes.

References in periodicals archive ?
Others are boning up on a marketing technique that's long been used by home builders, but has rarely been seen in resale transactions in recent years: interest rate buy-downs.
The Energy Commission today unanimously approved funding of $582,000 for the development of two compressed natural gas fueling facilities and for buy-downs of alternative-fuel vehicles.
Also, the survey indicates that plans expect to post increases before buy-downs of 9.
The buy-downs can come from a wide range of sources, such as gifts or grants.
Examples of these products include loss corridors, swing plans and retention buy-downs.
To help its members during a soft economy, Flooring America has developed a business boosting kit that includes financing programs, product buy-downs and advertising.
Employers can choose from a variety of EAH benefit options including access to homebuying workshops provided by participating real estate professionals, or a financial benefit, such as a loan or grant to help fund downpayments, closing costs or interest rate buy-downs.
Before buy-downs, premium rate increases are expected to be 10.
The effect of several years of significant benefit buy-downs as a means of manipulating premium increases most likely has been fully exhausted.
buy-downs, the medical expense trend to be in the range of 10
The US convenience store industry is facing significant change with regard to the cigarette category due to increasing consumer price sensitivity brought about by recent changes in legislation regarding manufacturing quotas, alternative low-price sources and the ongoing impact of buy-downs and retail display allowances (RDAs).
By implementing an EAH plan, employers can provide a variety of benefits, including down payment or closing cost assistance, interest rate buy-downs, and home-buyer education.