Buy-down

Definition

• The option of buying a lower mortgage rate. The borrower "buys down" the interest rate on a mortgage by paying discount points when the loan is first initiated. It can also be a mortgage where an initial lump-sum payment is made to temporarily reduce a borrower's monthly payments during the first few years of the mortgage.

Synonyms
reduce, sale, pay down, discount

Alternate Spellings
Buydown, Buy Down

Related Terms and Acronyms

• Basis Point (BPS) — Acronym, Very Important,
  • A unit of measure: 1/100th of one percent. For example, the difference between a 9.0% loan and a 9.5% loan is 50 basis points.
  ➥ Used by mortgage brokers and lenders when discussing mortgage rates and determining commissions.
• Buy-down Mortgage — Definition, Important,
  • A home loan in which the lender charges below-market interest in exchange for discount points.
• Commission (comm) — Abbreviation,
  • A fee paid to a salesperson for selling a product to a customer.
  • An agent's fee for negotiating a real estate or mortgage loan transaction, often expressed as a percentage of the selling price.
• Discount Point — Definition,
  • A sum a borrower pays to a lender to decrease the interest rate of a mortgage. A point equals 1 percent of the loan amount.
• Down Payment — Definition,
  • The portion of the purchase price a buyer pays, in cash, at the time the loan originates.
• Gift From a Family Member — Definition,
  • A gift of cash, to a mortgage applicant from a relative by blood or marriage, which the applicant is not required to repay. In some instances it is necessary to provide a written statement to that repayment is not required.
• Low-down Mortgages — Definition, Important,
  • Mortgages with a low down payment, usually less than 10 percent.
• Margin — Definition,
  • The difference between the cost and the selling price.
  • Expressed as percentage points, the amount that a lender adds to an index to arrive at the final interest rate. For example, if the index is 9 percent and the margin 2.75 percent, the final interest rate is 11.75 percent.
• Point — Definition,
  • A point equals 1 percent of a mortgage loan. Some lenders charge "origination points" to cover expenses of making a loan. Some borrowers pay "discount points" to reduce the loan's interest rate.
• Shared-Appreciation Mortgage (SAM) — Acronym,
  • A mortgage loan where the lender or a third-party backer agrees to offer a highly reduced mortgage rate to the borrower in exchange of sharing profits when the property is sold.
  • A home loan in which the lender offers a below-market interest rate in exchange for sharing in the profit when the home is sold. Usually done only with private funds/lenders.