A buy-down mortgage is a special type of home financing where the lender agrees to lower the interest rate for a few years in exchange for some payment. This type of mortgage might be structured in any number of different ways. In cases where a seller is desperate, he might negotiate with the lender to provide regular payments in exchange for the lender lowering the interest rate on the buyer’s loan. In other cases, the home buyer himself will arrange to make small extra payments in order to purchase the rate decrease. The buy-down period will usually run anywhere from one to five years. Buy-down mortgages are most often used as an enticement by the home seller. In a competitive market, these arrangements give the seller an additional benefit in that they can dangle cash savings in front of a buyer who might not be quite sure about the financial impact of the purchase.
