Temporary Buydowns Defined

Temporary buydowns decrease your monthly mortgage payments for a period of time. Temporary buydowns can be used on any type of home loan.      

How Temporary Buydowns Work

Borrowers whose monthly cash flows will not meet interest rate demands might benefit from temporary buydowns. The borrower must be able to provide excess cash upfront at the time the loan is closed.

After payments are made, the interest rate on the loan is decreased by a significant amount. This original decrease only lasts a short period of time, usually around six months. After that time, the discount still exists, but it is less significant. Once the second period of discounted rates is over, usually one year after negotiations, the interest rate returns to its original value.

If the borrower does not have excess cash, sometimes the lender will pay the upfront amount in order to speed up and ensure the sale of the loan.