Mortgage glossary
Rate buydown (temporary)
Definition: A temporary rate buydown is an arrangement, often funded by the seller or builder, that lowers a mortgage's interest rate for the first one to three years before it returns to the note rate.
Common structures include a 2-1 buydown, where the rate is reduced by two percentage points in year one and one point in year two, and a 1-0 buydown. The cost of the reduced payments is placed in an account at closing and drawn down each month. Borrowers typically must qualify at the full note rate.
Temporary buydowns are popular with Austin area builders and motivated sellers as an alternative to a price cut. Compare one against a permanent buydown with discount points. We offer temporary buydowns on agency loans.
Related terms
Reviewed by Kyle Richardson, NMLS #863464. General information, not advice for your specific situation. All glossary terms
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