How it works: A buydown loan is a way for a buyer to pay in order to temporarily lower the interest rate over a certain period of time by purchasing discount or mortgage points. The seller or builder can help fund the temporary buydown.
Temporary buydowns offer several advantages for homebuyers. Firstly, they provide a 2-year reduction in the buyer's principal and interest payments, effectively lowering their immediate financial burden. This is especially beneficial for buyers anticipating higher future earnings, as it enhances their short-term cash flow. Moreover, temporary buydowns mirror the pattern of rental price increases but channel funds into building home equity rather than leasing. They also offer predictability in payment increases through structured buydown options, in contrast to adjustable-rate mortgages (ARMs). Additionally, temporary buydowns can be utilized in conjunction with seller concessions, and the resulting payment savings can be directed towards home improvements or other significant purchases associated with buying a new home.
Reference: 2022 Keller Mortgage LLC