Rate Buydown
Quick answer
A rate buydown is an upfront payment made at closing to reduce the loan's interest rate for some or all of its term.
A buydown converts cash paid at closing into a lower ongoing payment. Borrowers use it when they expect to hold the loan long enough for the monthly saving to exceed the upfront cost, which is the same break-even arithmetic used when weighing a refinance. Whether a buydown is worthwhile depends on the hold period, not on the size of the rate reduction alone.
Free tool: Mortgage Refinance Calculator — run this calculation live, no sign-up required.
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