What is a mortgage loan buy-down?
There are two types of buy-down loans. One is permanent and the other is temporary. The permanent buy-down is the most common. The interest rate for your loan will be bought down by the use of points at closing. As an example, if the market rate today is 9% with no points, you could pay 2 points at closing and receive an interest rate of 8.5% for the entire term of your mortgage. With the temporary buy-down, there will be an escrow account collected at closing to subsidize the mortgage payments during the early years. After these funds are used, the payment will go to the actual note rate. With a note rate of 9%, you could have a temporary buy-down of 7% during the first year and 8% during the second year. At the end of the second year you would make the payments at the full note rate of 9% for the remainder of the term of the loan 2% below the note rate the first year and 1% below the note rate for the second year. The most common reason for the use of the temporary buy-down is to hel
