Buydown

Payments made to a lender in order to obtain the reduction of the interest rate for a period of time. Often considered interchangeable with a mortgage subsidy, a mortgage buydown is a distinct product offering governed by specific underwriting guidelines established by Fannie Mae and Freddie Mac. Mortgage buydown programs are interest-rate based products, usually a 3-2-1 or 2-1 approach. The rate is adjusted annually and is subject to maximum rate increase year over year of 1%.