What happens when a buyer participates in a buydown?

When a buyer participates in a buydown, they lower their interest rate upfront. A buydown is a financing technique where the buyer (or often the seller) pays an upfront fee to reduce the interest rate on a mortgage. This reduction in the interest rate can lead to lower monthly payments for the buyer. The upfront cost can be seen as an investment in obtaining a more favorable interest rate over the loan's duration, resulting in significant savings over time.

This strategy is often beneficial in scenarios where the buyer intends to stay in the home for several years since the initial cost can be recouped through the savings on monthly payments. It provides immediate cash flow benefits by making homeownership more affordable from the outset.