In residential or commercial real estate, interest rate buy-down plans are arrangements in which the seller of a property agrees to advance some amount of the purchase price to the buyer to help him or her buy down the interest rate on the mortgage. This helps the buyer reduce the monthly obligation that he or she will have as this sort of arrangement is typically set up for a buyer who is short on cash. As one might expect, interest rate buy-down plans are usually employed in buyer’s markets: When the seller needs to make the sale, he or she will provide an incentive to help the buyer get the best possible deal on financing by utilizing such a plan. These deals do not make a tremendous amount of sense when the seller has many options, however. Likewise, they are not readily used when buyers have the cash on hand to buy down the mortgage interest rate on their own.
