Buydown

Buydown

A mortgage-financing technique with which the buyer attempts to obtain a lower interest rate for at least the first few years of the mortgage, but possibly its entire life. The builder or seller or the property usually provides payments to the mortgage-lending institution, which, in turn, lowers the buyer's monthly interest rate and therefore monthly payment. The home seller, however, increases the purchase price of the home to compensate for the costs of the buydown agreement.

Notes:

Buydowns are easy to understand if you consider them a mortgage subsidy made to the homebuyer on behalf of the seller. Typically, the seller contributes funds to an escrow account that subsidizes the loan during the first years, resulting in a lower monthly payment for the homebuyer. This lower payment allows the homebuyer to qualify more easily for the mortgage.

Most buydowns last for a period of one to five years, and the mortgage payments increase once the buydown expires.

See also: Mortgage, Mortgagee, Mortgagor, Origination, Real Estate

---

Buydown

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.

---

Buydown

Mortgages in which monthly payments consist of principal and interest. During the early part of the loan, portions of these payments are provided by a third party to reduce the borrower's monthly payments. In the context of project financing, refers to a one-time payment out of liquidated damages to reflect cash flow losses from sustained underperformance.