Buydown Law and Legal Definition

“Buydown” is a mortgage-financing technique with which the buyer attempts to obtain a lower interest rate for at least the first few years of the mortgage, or possibly the entire life of the mortgage. Usually, the builder or seller or the property provides payments to the mortgage-lending institution. The lending institution lowers the buyer's monthly interest rate and thus, the monthly payment. However, a home seller increases the purchase price of the home to compensate for the costs of the buydown agreement. Most buydowns last for a period of one to five years. The mortgage payments increase once the buydown expires.