Buy Down Loan

Buy Down Loan

A buy down loan is where 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. 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. Lenders typically charge a fee to buy the rate down for the first 1, 2, or 3 years. Borrowers who have trouble getting a fixed rate loan or who are seeking a more affordable payment might consider a buy-down loan program.


  • Lower initial monthly payments
  • A considerably lower interest rate.


  • Interest rates at the end of buy down period could be higher then the start of the loan.
  • Higher cost to buy down the interest rate from the lenders.