Buydown
Paying money upfront to lower the interest rate, either permanently or for a set number of years. A 2-1 buydown drops the rate 2% in year one and 1% in year two.
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See how it worksWhere this comes up: on the market
Part 1 of 4
Why a seller cares
A buydown is a seller concession that lowers the buyer's rate for a year or two, and it costs you a fixed amount at closing. Buyers ask for it in place of a price cut when payments, not price, are what worry them.
Part 2 of 4
A simple example
A buyer asks for a 2-1 buydown on a $240,000 loan at 6.5%. Their rate is 4.5% the first year and 5.5% the second.
| The year | What the buyer pays, and what it costs you |
|---|---|
| Year one at 4.5% | About $300 a month less for them; roughly $3,600 of your credit |
| Year two at 5.5% | About $150 a month less; roughly $1,800 more |
| Year three on | Full rate; the credit is used up |
The buydown is a concession with a schedule. Its total cost is known at closing.
Part 3 of 4
What people get wrong
That a buydown is cheaper than a price cut of the same size. It nets the same to you; the difference is what the buyer's lender will finance.
Part 4 of 4 · where to read next
Where it appears in the sale
What a definition is, and what it isn't
Keighbor is a software company, not a law firm, brokerage, or tax adviser. This is general information, not legal, tax, financial, or real estate advice about your sale. Your situation may differ. Before acting on a contract, disclosure, title, tax, or pricing question, ask an appropriately licensed professional in your state.
Written and researched by Keighbor Research · drawn from the reference glossary · how we research and check what we publish
In your Room, this word explains itself where it appears.
Your Room defines buydown in the step you meet it in, beside the document or the date it belongs to. Free to set up, with an agent or on your own.
Organize my saleFree to set up. Pay once when you list: $89 or $189. 7-day refund.