Buydown

In real estate financing, a buydown refers to a payment made to a lender (often by the buyer, seller, or builder) to reduce the interest rate on a mortgage loan. This payment is typically made upfront at closing in the form of discount points, with the goal of lowering the borrower’s monthly mortgage payments over time. Buy downs may be structured as permanent reductions for the life of the loan or as temporary reductions during the initial years of the loan term. They are commonly used as an incentive in real estate transactions to make financing more affordable or attractive, particularly in competitive markets. The cost and benefits of a buy down depend on factors such as loan duration, interest rate savings, and how long the borrower expects to hold the loan.