Mortgage Rate Buydown Explained

Introduction

A rate buydown lowers your interest rate by paying upfront. A permanent buydown (discount points) lowers the rate for the life of the loan. A temporary buydown lowers it for the first year or two, then steps up. See Temporary Rate Buydown Explained, What Are Mortgage Points, and Mortgage Points vs Rate Trade Off.

Frequently Asked Questions

What is a rate buydown?

A rate buydown is when you (or the seller) pay upfront to lower your interest rate. It can be permanent (for the life of the loan, like discount points) or temporary (for the first few years).

What is a permanent buydown?

A permanent buydown (discount points) lowers your rate for the entire loan term. You pay points at closing in exchange for a lower rate.

What is a temporary buydown?

A temporary buydown (e.g., 2-1 buydown) lowers your rate for the first year or two, then it steps up to the note rate. Often used when the buyer expects income to rise.

Who pays for a buydown?

The buyer, seller, or builder can pay. Seller-paid buydowns are sometimes used as a concession to help the buyer qualify or afford the payment.