What is Temporary Buydown?
A temporary buydown is a mortgage feature where the interest rate is reduced for a set period, typically the first few years, and then gradually increases to the note rate.
A temporary buydown lowers your mortgage interest rate for an initial period, often two or three years, before it rises to the full note rate. The most common is the two-one buydown, where the rate is reduced by two percentage points in the first year and one point in the second. The funds to cover the reduced payments are held in an escrow account and released to the lender. Borrowers use temporary buydowns to ease into payments, especially if income is expected to rise. Watch for the payment increase after the buydown period and ensure you can afford the higher payments. Also, note that temporary buydowns may require seller or builder contributions.
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