Buy down interest rate Meaning and Definition

Pronunciation

( BUY-dahwn IN-tree-est RAYT ) 🔊

Part of Speech

Noun

Definition

A strategy in which a lender pays a borrower a predetermined fee to lower the interest rate on a loan, often used in mortgage financing to reduce the monthly payment.

Examples

• The couple decided to buy down their interest rate on their new home to reduce their monthly mortgage payment.
• Buy downs can be especially beneficial for borrowers with low credit scores or those who need a lower interest rate to qualify for a loan.

Synonyms

• Interest rate reduction
• Loan adjustment

Etymology

The term “buy down” originates from the idea of “buying down” the interest rate on a loan, similar to how one might buy down the price of a commodity to reduce its value.

Additional Information

Buy downs can be purchased by the borrower or by a third-party, such as an employer or family member, as a gift. This strategy can be especially helpful for borrowers who plan to stay in their home for a long time or have other financial goals that depend on a lower interest rate.

Buy downs are often used in combination with other mortgage strategies, such as low-down-payment mortgages or adjustable-rate mortgages, to create a more affordable loan package.

Usage Notes

When using the term “buy down,” it’s essential to specify the interest rate being reduced and the term of the loan, as well as any other relevant details.

Cultural References

Buy downs are often discussed in the context of real estate and personal finance, particularly in the US, where the housing market is a significant aspect of the economy.

Idiomatic Expressions or Phrases

“Buy down the rate” is a common idiomatic phrase used to describe this strategy.

Related Words or Phrases

• Interest Rate
• Mortgage
• Loan

Collocations

• Buy down interest rate
• Interest rate reduction

Frequency of Use

The term “buy down interest rate” is relatively uncommon, but its usage is increasing as the real estate and mortgage markets continue to evolve.

Common Misspellings

Gerbera