Interest Rate Buy Downs - The most common buy down is the 2-1 buy down. In the past, for a buyer to secure a 2-1 buy down they would pay 3 points above current market points in order to pay a below market interest rate during the first two years of the loan. At the end of the two years they would then pay the old market rate for the remaining term.
Rate buy down fee - This is a fee paid to ‘buy’ your interest rate down. It is also commonly referred to a as loan discount fee.
There is not always a consistent ratio between the discount points you pay and the amount it lowers your interest rate. The first point you pay may lower your interest rate by 0.25% but the second point may lower it by more or less than 0.25%. If you are interested in buying down your interest rate, have your mortgage broker work up several options. Make sure you calculate not only the cost and monthly savings, but the break even point as well.
Buy-down - "My broker says I can buy-down the rate on my mortgage. What does that mean, and how does it affect my payments?"
If you "buydown" the rate on your mortgage you are simply paying money up front to reduce the interest rate on your loan.
This is used to reduce your mortgage payment, and also may be tax deductible.
Buy-up - "My broker says I can buy-up my mortgage. What does that mean, and how can it affect my payments?"