What is a Buydown?
A buydown allows a borrower to obtain a lower interest rate, for a period of time, by prepaying some of the interest on the loan. Typically, the builder or seller of the property provides a lump sum concession (prepaid interest) that is held in a custodial escrow account and applied each month to the borrower’s subsidized payment. The borrower may pay all or a portion of the buydown amount as well.
Loan Amount: $100,000
Buydown Type: 2/1
Interest Rate: 5%
P&I Payment: $537
This illustration is based on “Year 1” in the previous example.
Information provided by Caliber Home Loans.