Buydown mortgage enables to get a low interest rate on your home loan temporarily and is particularly helpful to people looking for a big loan with lack of money to meet the payment. The lower initial payment makes the loan easy to qualify for a buyer. So, if somebody expects a higher salary in future, he/she can afford this loan.

An escrow account is formed and a lump sum is paid by the seller, as incentive to the buyer, to buy down the interest. There may lender funded buydown where the lender pays the lump sum. Once the buydown adjustment period is over the lender can make more money with the higher rate of interest rate charged on the loan. The different types of buydown mortgage offered are 3-2-1 buydown, 2-1 buydown, 1-0 buydown.

For buyers the advantages are -

• It offers a lower rate and monthly payment at the initial period of the loan.
• The borrowers who find it difficult to qualify for a fixed rate loan or low monthly payment.

But one should be prepared for the higher payment afterwards and make his/her budget plans accordingly.

More References

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