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
discount, reduce, pay down, sale

Alternate Spellings
Buy Down, Buydown

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,
    • 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.
    • The difference between the cost and the selling price.
  • 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.
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