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Buy Down Loan Program

For a buy down loan program, the interest rate and payment remain unchanged for a fixed period, at the end of which, the interest rate and payment both increase. The interest rate and payment may increase once, twice, or even three times, depending on whether the Buy-down is a 1/1, 2/1, or 3/1. However, the percentage of increase, as well as number of increases is predetermined. Once all of the increases have occurred, the new rate and payment remain fixed for the term of the loan. Furthermore, lenders will as a rule charge a fee to buy the rate down for the first 1, 2, or 3 years of the loan. Borrowers having troubles getting fixed rate loan and seeking affordable payment are recommended to consider Buy-down loan program.

Advantages:

Lower initial monthly payments with considerably lower interest rate.
One of the advantages to a Buy down is that it provides an option to buy the lower rates.

Disadvantages

Always a risk of higher Interest rate at the end of initial fixed period.
Typically, it is costly to buy down the interest rate from the lenders.