A buydown is a home loan financing method where the purchaser tries to get a lower rate of interest.
In the buyer’s market, the seller normally pays the lender buydown mortgage points to the lender which brings down the buyer’s rate of interest on the mortgage, resulting in lower monthly payments.
In the case of refinancing, the borrower can use the buydown mortgage to lower the interest rate by paying upfront points.
Points or Discount points are fees charged by the lender upfront so that you can get a lower interest rate. One point equals one percent of the total loan amount.
The points could be paid by any one of the parties depending on the sales contract, Buyer, Seller, builders, or borrowers who are refinancing their mortgage.
The borrower will get the benefit from the buydown by paying the points to the lender in exchange for a lower rate.
Some buy downs have expiration in which the buydown rate expires after a few years, where the borrower needs to pay the standard interest rate.
This causes the monthly payments to increase for the borrower once the buydown rate expires.