What is a Buy Down?

Buy Downs are a type of financing that can lower the interest rate on a mortgage for a certain period of time. There are two main types of buy downs:

Standard Discount Points: This is a long-term buy down option that involves paying more interest upfront (in the form of a fee) in exchange for a lower interest rate over the life of the loan. This option is best used when you can have a "recapture period" that is shorter than the length of time you plan on keeping the loan and home (for example, if you pay $4000 more at closing to save $100 per month with a lower rate, and you plan on staying in the home for 5 years).

2-1 Rate Buydown: This is a short-term buy down option that lowers the interest rate on a mortgage for the first two years before it rises to the regular, permanent rate. The rate is typically two percentage points lower during the first year and one percentage point lower in the second year (for example, 3.5% in the first year, 4.5% in the second year, and 5.5% in the third year and beyond).

Both buy down options can be a good way to save money on your mortgage, but it's important to carefully consider the terms and determine whether it makes financial sense for your specific situation