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Definition - What does Buydown mean?

A buydown is when a party makes a large lump sum payment on a loan during the repayment period. By doing this, both the monthly payment amount and the interest rate for the loan can be significantly reduced. In the context of the law, buydowns can change the payment amounts that are legally owed on the loan.

Justipedia explains Buydown

Buydowns are sometimes made by third parties. For example, a woman's father may make a buydown payment on her mortgage loan. The purpose of buydowns is to make paying the loan back easier in the future. Buydowns benefit lenders by helping them to get their money back faster. However, even if a person makes a buydown payment on their loan, that does not necessarily mean that they won't default in the future. It just reduces the monthly payment amounts.

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