A way of financing your mortgage loan to reduce your monthly payments for a few years when you buy a property.
In a buydown, the seller promises to pay a lump sum from the proceeds of the sale to reduce the interest rate on the buyer's mortgage loan for a few years. This is used by the seller as an incentive to make the property more attractive to buyers.
For example, say the buyer has arranged a mortgage loan of $200,000 with a loan term of three years at a rate of 8%. To buy down the interest rate to 6%, the seller would pay the lender the 2% difference, which would be about $12,000. This would reduce the buyer's monthly payments by about $250.
Buydowns are typically used when interest rates are high (10% or higher), but are rarely used when rates are low.