- The lender agrees to lower the interest rate for 1 to 3 years.
- The reduced interest rate will be calculated depending on the type of buydown selected.
- The lowered interest rate provides you with more affordable monthly mortgage payments during the buydown period.
- At the end of the Temporary Buydown period, your rate will increase to the full interest rate on your note.
For example: A builder and borrower agree to a “2/1” Temporary Buydown. The borrower is qualified and locks in an interest rate at 6.5%. With the Temporary Buydown, the borrower’s rate would decrease by two points in year one, one point in year two, and then would be the full interest rate by year three. So in this example, the rate would decrease to 4.5% for the first year, 5.5% for the second year, and then stabilize at 6.5% from the third year onwards.