Reviewed by Casa Academy and updated July 29, 2026 using the current DBPR checklist and Pearson VUE scheduling guidance.
Buydown
A buydown is a financing technique where someone pays upfront points or a subsidy so the borrower's interest rate or monthly payment is lower during an initial period or for the life of the loan.
Exam context
Recognize that buydown funds are paid at closing to buy a lower effective payment early in the loan. Distinguish buydowns from adjustable-rate mortgages, where the index drives future rate changes without a pre-funded subsidy.
Temporary vs permanent buydowns
A permanent buydown buys discount points to reduce the rate for the entire term. A temporary buydown, such as a 2-1 structure, lowers payments in years one and two by depositing funds into an escrow account that subsidizes the lender each month, then payments step up to the note rate.
Who pays and why
Builders, sellers, or lenders may fund buydowns to help buyers qualify or to compete with lower-rate environments. Underwriting may use the note rate or the first-year payment depending on program guidelines. Exams focus on vocabulary and who funds the subsidy, not complex amortization tables.
Examples
Seller concession
A seller credits $8,000 at closing to fund a 2-1 buydown so the buyer's first-year payment matches an affordability target.
Permanent points
A buyer pays two discount points to reduce a 30-year fixed rate from 6.75% to 6.25% for the entire loan term.
Keep studying
Related terms
- Adjustable-rate mortgageLoans whose rate changes with an index rather than a prepaid subsidy.
- AmortizationHow principal and interest payments are scheduled.
Related resources
- Free exam prep
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- Real estate glossary hub
Browse all published national glossary entries.
- Florida exam topic hub
Florida-specific explainers and question sets for this topic area.
Sources
- FHFA: mortgage pricing overview(Federal Housing Finance Agency)