buy down

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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.
Farlex Financial Dictionary. © 2012 Farlex, Inc. All Rights Reserved

buy down

To reduce the interest on a mortgage loan by paying discount points in order to buy down the rate. For residential loans, it rarely makes sense for borrowers to buy down their rate. In order to evaluate,ask for the amount of the monthly principal and interest payments with and without the reduced rate.Subtract the lower number from the larger number.This is the amount of your monthly savings. Divide your monthly savings into the price for the buy down. This provides the number of months you must pay on the mortgage before you will have saved enough money to pay for the discount points. Finally, ask yourself,“Do I realistically think I will own this property for that length of time?”If not,then do not pay the points.

The Complete Real Estate Encyclopedia by Denise L. Evans, JD & O. William Evans, JD. Copyright © 2007 by The McGraw-Hill Companies, Inc.
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